Asymmetric extreme interdependence in emerging equity markets

Beatriz Vaz de Melo Mendes

43 citations0/0 files storedApplied Stochastic Models in Business and Industry

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Financial Risk and Volatility Modeling Market Dynamics and Volatility Complex Systems and Time Series Analysis

Abstract

Abstract We assess the extent of integration between stock markets during stressful periods using the concept of copulas. Our methodology consists of fitting copulas to simultaneous exceedances of high thresholds, and computing copula‐based measures of interdependence and contagion. Using 21 pairs of emerging stock markets daily returns, we investigate if dependence increases with crisis, and analyse the chances of both markets crashing together. Dependence at joint positive and negative extreme returns levels may differ. This type of asymmetry is captured by the upper and lower tail dependence coefficients. Propagation of crisis may be faster in one direction, and this feature is captured by asymmetric copulas. Copyright © 2005 John Wiley & Sons, Ltd.

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References

1999An Introduction to Copulas 2001An Introduction to Statistical Modeling of Extreme Values 2002No Contagion, Only Interdependence: Measuring Stock Market Comovements 1997Modelling Extremal Events 1994Modelling of extremal events in insurance and finance 2001Extreme Correlation of International Equity Markets 2002Correlation and Dependence in Risk Management: Properties and Pitfalls 1995Is the correlation in international equity returns constant: 1960–1990?

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