Extremal Dependence and Contagion
A new test for financial market contagion based on changes in extremal dependence defined as co-kurtosis and co-volatility is developed to identify the propagation mechanism of shocks across international financial markets. The proposed approach captures changes in various aspects of the asset return relationships such as crossmarket mean and skewness (co-kurtosis) as well as cross-market volatilities (covolatility). In an empirical application involving the global financial crisis of 2008-09, the results show that significant contagion effects are widespread from the US banking sector to global equity markets and banking sectors through either the co-kurtosis or the co-volatility channel, reinforcing that higher order moments matter during crises.
|Date of creation:||May 2014|
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"Measurement of contagion in banks' equity prices,"
Journal of International Money and Finance,
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- Fry-McKibbin, Renée & Martin, Vance L. & Tang, Chrismin, 2014. "Financial contagion and asset pricing," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 296-308.
- Renée Fry-McKibbin & Vance Martin & Chrismin Tang, 2013. "Financial Contagion and Asset Pricing," CAMA Working Papers 2013-61, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Renée Fry & Cody Yu-Ling Hsiao & Chrismin Tang, 2011. "Actually This Time Is Different," CAMA Working Papers 2011-12, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Bekaert, Geert & Wu, Guojun, 2000. "Asymmetric Volatility and Risk in Equity Markets," Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 1-42.
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