Systematic extreme potential gain and loss spillover across countries

Mohammed Bouaddi () and Khouzeima Moutanabbir ()
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Mohammed Bouaddi: American University in Cairo
Khouzeima Moutanabbir: University of Johannesburg

Risk Management, 2022, vol. 24, issue 4, No 3, 327-366

Abstract: Abstract This paper investigates the existence of systematic extreme risks at a multi-country level that leads to gains and losses spillover. A measure of systematic risk that quantifies both the downside risk and the upside potential in the extreme is introduced. This measure is based on the Conditional-Value-at-Risk (CoVaR) measure and copulas to capture dependencies. Using our approach, we study the contagion effect between different financial markets in the extreme. We show that there is an asymmetric contagion effect from the US stock market to other international markets. The impact is higher when the US market is extremely bear than when it is extremely bull. This paper adds novel findings on the asymmetry between extreme losses and extreme gains and the differences among different countries’ reactions to shocks.

Keywords: Systematic risks; Extreme co-movements; Potential gains; Downside risks; CoVaR risk measures; Tail dependence (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1057/s41283-022-00097-8

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