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The Dark Side of Global Integration: Increasing Tail Dependence

  • Antonio Cosma
  • antonio.cosma@uni.lu

    (Luxembourg School of Finance, University of Luxembourg)

  • Michel Beine

    ()

    (CREA, University of Luxembourg and CES-info)

  • Robert Vermeulen

    ()

    (CREA, University of Luxembourg and Department of Economics, Maastricht University)

We measure stock market coexceedances using the methodology of Cappiello, Gerard and Manganelli (2005, ECB Working Paper 501). This method enables us to measure comovement at each point of the return distribution. First, we construct annual coexceedance probabilities for both lower and upper tail return quantiles using daily data from 1974-2006. Next, we explain these probabilities in a panel gravity model framework. Results show that macroeconomic variables asymmetrically impact stock market comovement across the return distribution. Financial liberalization significantly increases left tail comovement, whereas trade integration significantly increases comovement across all quantiles. "Keywords: stock market comovement; trade integration; financial integration" "Classification-JEL: F15 ; F36 ; F41 ; G15"

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Paper provided by Luxembourg School of Finance, University of Luxembourg in its series LSF Research Working Paper Series with number 09-05.

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Date of creation: 2009
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Handle: RePEc:crf:wpaper:09-05
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