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Stock Market Contagion: a New Approach

Štefan Lyócsa () and Roman Horvath

Open Economies Review, 2018, vol. 29, issue 3, 547-577

Abstract: Abstract We develop a new approach to assess stock market contagion that involves examining whether higher unexpected volatility during extreme market downturns of the originating market is associated with increased return co-exceedance with the recipient market. Using daily data from 1999 to 2014 and quantile regressions with a wide set of control variables, we find evidence of contagion from the U.S. stock market to the six largest developed stock markets (Japan, United Kingdom, France, Germany, Hong Kong, and Canada). In addition, our results show that contagion is not solely a crisis-specific event, because we find contagion present over the whole sample period. Interestingly, the return co-exceedances during extreme market downturns are not driven by fundamentals, further supporting our results regarding contagion.

Keywords: Contagion; Volatility; Stock markets; Co-exceedance (search for similar items in EconPapers)
JEL-codes: G01 G14 G15 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:openec:v:29:y:2018:i:3:d:10.1007_s11079-018-9481-4