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Extremal spillovers in financial markets

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  • Straetmans, Stefan

    (Vrije Universiteit Amsterdam, Faculteit der Economische Wetenschappen en Econometrie (Free University Amsterdam, Faculty of Economics Sciences, Business Administration and Economitrics)

Abstract

We analyze the interdependency between different financial markets by using multivariate extreme value theory. This permits one to focus on the occurrence of simultaneous financial market crises, whereas standard co-variance analysis is less suitable for studying extreme interdependencies. The analysis builds on the so-called stable tail dependence function which measures the amount of interdependency between the tail probabilities of multiple random variables. The empirical implementation of this semipara-metric approach relies on order statistics. With these estimates one can calculate conditional spillover probabilities or other VaR-related multivari-ate risk measures for vectors of asset returns and for chosen crash levels. An empirical illustration shows relatively low stock market spillovers which is not in line with the presumption that stock markets are fairly good in-tegrated and that integration has risen over time.

Suggested Citation

  • Straetmans, Stefan, 2000. "Extremal spillovers in financial markets," Serie Research Memoranda 0013, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
  • Handle: RePEc:vua:wpaper:2000-13
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    File URL: http://degree.ubvu.vu.nl/repec/vua/wpaper/pdf/20000013.pdf
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    References listed on IDEAS

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    Cited by:

    1. Paraschiv, Florentina & Qin, Minzi, 2013. "Extreme Spillover Between Shadow Banking and Regular Banking," Working Papers on Finance 1312, University of St. Gallen, School of Finance.

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    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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