EconPapers    
Economics at your fingertips  
 

Measuring Financial Contagion with Extreme Coexceedances

Apostolos Thomadakis

No 1112, School of Economics Discussion Papers from School of Economics, University of Surrey

Abstract: This paper tests for contagion firstly, within the Euro Area (EA thereafter), and secondly from the US to the EA. Using 'coexceedances' - the joint occurrences of extreme negative and positive returns in different countries in a given day - I define contagion within regions as the fraction of the coexceedances that cannot be explained by fundamentals (covariates). On the other hand, contagion across regions can be defined as the fraction of the coexceedance events in the EA that is left unexplained by its own covariates but that is explained by the exceedances from the US. Having applied a multinomial logistic regression model to daily returns on 14 European stock markets for the period 2004-2012, I can provide the following summary of the results. Firstly, I found evidence of contagion within the EA. Especially, the EA 10 year government bond yield and the EUR/USD exchange rate fail to adequately explain the probability of coexceedances in Europe. Therefore, these variables are important determinants of regional crashes. In addition, I have observed that negative movements in stock prices follow continuation patterns - coexceedances cluster across time. Secondly, there is no statistically significant evidence of contagion from the US to the EA, in the sense that US exceedances fail to explain high probabilities of coexceedances in the EA. This result holds under a large battery of robustness checks. I would rather interpret this as a normal interdependence between the two markets.

JEL-codes: C25 E44 F36 G15 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2012-09
New Economics Papers: this item is included in nep-cba and nep-eec
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://repec.som.surrey.ac.uk/2012/DP11-12.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sur:surrec:1112

Access Statistics for this paper

More papers in School of Economics Discussion Papers from School of Economics, University of Surrey Contact information at EDIRC.
Bibliographic data for series maintained by Ioannis Lazopoulos ().

 
Page updated 2025-03-20
Handle: RePEc:sur:surrec:1112