Asset Market Linkages in Crisis Periods

By Philipp Hartmann, Stefan Straetmans, Casper G. de Vries. Review of Economics and Statistics, 2004

742 citations recorded by the source corpus.

We characterize asset return linkages during periods of stress by an extremal dependence measure. Contrary to correlation analysis, this nonparametric measure is not predisposed toward the normal distribution and can allow for nonlinear relationships. Our estimates for the G-5 countries suggest that simultaneous crashes between stock markets are much more likely than between bond markets. However, for the assessment of financial system stability the widely disregarded cross-asset perspective is particularly important. For example, our data show that stock-bond contagion is approximately as frequent as flight to quality from stocks into bonds. Extreme cross-border linkages are surprisingly similar to national linkages, illustrating a potential downside to international financial integration.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/8ec35fbb89fe90e8a7321236e45c167b85373a83

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Citations in the corpus

MODELLING ASYMMETRIC EXCHANGE RATE DEPENDENCE a (2006, background): “Dependence during extreme events has been the subject of much analysis in the financial contagion literature; see Hartmann et al. (2004) among others.”
Are Banks Too Big to Fail? Measuring Systemic Importance of Financial Institutions (2010, methodology): “For the bivariate case, this was considered by Hartmann, Straetmans, and de Vries (2004) in measuring systemic risk across different financial markets.”
Dependence structure and extreme comovements in international equity and bond markets (2011, positive): “23 A related study by Hartmann et al. (2004) using extreme value theory tends to support this restriction.”
The Dark Side of Global Integration: Increasing Tail Dependence (2010, positive): “Moreover, due to its flexibility, the CAViaR method is not constrained in the choice of the quantile to model, whereas in measures based on extreme value theory the choice is constrained by the threshold level beyond which asymptotic theory applies (Hartmann et al., 2004, e.g.).”
Cross-Border Bank Contagion in Europe (2012, neutral): “16 As US markets open later than European markets, ”volatility US” is one day lagged.”
Contagion as a domino effect in global stock markets (2009, neutral): “3 See Kaminsky and Schmukler (1999), Longin and Solnik (2001) and Hartmann et al. (2004).”
Did the S.A.R.S. epidemic weaken the integration of Asian stock markets? Evidence from smooth time-varying cointegration analysis (2018, background): “epidemic in contrast to the possible influence of economic crises on stock market integration (Hemche et al., 2016; Narayan et al., 2014). In addition, Lence and Falk (2005, p. 889) mention that the issue of whether asset prices are cointegrated or not rests on the characteristics of preferences and”
Commonality in the time-variation of stock-stock and stock-bond return comovements (2007, background): “…2002; Kodres and Pritsker, 2002; Ang and Bekaert, 2002; Ang and Chen, 2002; Ribeiro and Veronesi, 2002; Corsetti et al., 2005) and stock–bond comovement (see, e.g., Fleming et al., 1998, 2001; Scruggs and Glabadanidis, 2003; Hartmann et al., 2004; Connolly et al., 2005; Gulko, 2002; Li, 2002).”
Extreme Value Theory for Finance: A Survey (2012, background): “…currency crises, as it is standard in the literature, they choose as a dependence measure a quantity introduced by Huang (1992) and first applied by Hartmann et al. (2004) (see below): namely, the expected value of the number k of extreme events (the EMP index of k countries exceeding a high…”