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Measuring comovements by regression quantiles

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  • Cappiello, Lorenzo
  • Manganelli, Simone
  • Gérard, Bruno

Abstract

This paper develops a rigorous econometric framework to investigate the structure of codependence between random variables and to test whether it changes over time. Our approach is based on the computation - over both a test and a benchmark period - of the conditional probability that a random variable yt is lower than a given quantile, when the other random variable xt is also lower than its corresponding quantile, for any set of prespecified quantiles. Time-varying conditional quantiles are modeled via regression quantiles. The conditional probability is estimated through a simple OLS regression. We illustrate the methodology by investigating the impact of the crises of the 1990s on the major Latin American equity markets returns. Our results document significant increases in equity return co-movements during crises consistent with the presence of financial contagion. JEL Classification: C14, C22, G15

Suggested Citation

  • Cappiello, Lorenzo & Manganelli, Simone & Gérard, Bruno, 2005. "Measuring comovements by regression quantiles," Working Paper Series 501, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2005501
    Note: 234084
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    References listed on IDEAS

    as
    1. Eichengreen, Barry & Rose, Andrew K & Wyplosz, Charles, 1996. "Contagious Currency Crises," CEPR Discussion Papers 1453, C.E.P.R. Discussion Papers.
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    4. Mr. Alessandro Rebucci & Mr. Matteo Ciccarelli, 2003. "Measuring Contagion with a Bayesian Time-Varying Coefficient Model," IMF Working Papers 2003/171, International Monetary Fund.
    5. Len Umantsev & Victor Chernozhukov, 2001. "Conditional value-at-risk: Aspects of modeling and estimation," Empirical Economics, Springer, vol. 26(1), pages 271-292.
    6. Kee-Hong Bae & G. Andrew Karolyi & René M. Stulz, 2003. "A New Approach to Measuring Financial Contagion," The Review of Financial Studies, Society for Financial Studies, vol. 16(3), pages 717-763, July.
    7. Robert F. Engle & Simone Manganelli, 2004. "CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles," Journal of Business & Economic Statistics, American Statistical Association, vol. 22, pages 367-381, October.
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    More about this item

    Keywords

    codependence; conditional quantiles; semi-parametric;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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