Mutual excitation between OECD stock and oil markets: A conditional intensity extreme value approach

Rodrigo Herrera, Sergio González and Adam Clements

The North American Journal of Economics and Finance, 2018, vol. 46, issue C, 70-88

Abstract: We analyze the degree of mutual excitation that exists between extreme events across the stock markets of OECD member nations and the Brent and WTI crude oil markets. For this analysis, marked point process models are proposed which are able to capture the dynamics of the intensity of occurrence and comovement during periods of crisis. The results show a significant, negative interdependence between most OECD markets, especially those of the USA, Japan and France. These major oil importing countries display links between equity market losses and positive returns in both oil markets. However, positive interdependence is not observed between any of the OECD countries except for South Korea. The great advantage of this methodology is that, apart from using the size distribution of extreme events, it also uses the occurrence times of extreme events as a source of information. With this information, these models are better able to capture the stylized facts of extreme events in financial markets such as clustering behavior and cross-excitation.

Keywords: Extreme value theory; Financial markets; Oil markets; Value at risk; Interdependence (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:46:y:2018:i:c:p:70-88

DOI: 10.1016/j.najef.2018.03.010

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