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Risk Spillover between the US and the Remaining G7 Stock Markets Using Time-Varying Copulas with Markov Switching: Evidence from Over a Century of Data

Qiang Ji (), BingYue Liu (), Juncal Cunado () and Rangan Gupta ()
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Juncal Cunado: University of Navarra, School of Economics, Edificio Amigos, E-31080 Pamplona, Spain

No 201759, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper analyses the risk spillover effect between the US stock market and the remaining G7 stock markets by measuring the conditional Value-at-Risk (CoVaR) using time-varying copula models with Markov switching and data that covers more than 100 years. The main results suggest that the dependence structure varies with time and has distinct high and low dependence regimes. Our findings verify the existence of risk spillover between the US stock market and the remaining G7 stock markets. Furthermore, the results imply the following: 1) abnormal spikes of dynamic CoVaR were induced by well-known historical economic shocks; 2) The value of upside risk spillover is significantly larger than the downside risk spillover and 3) The magnitudes of risk spillover from the remaining G7 countries to the US are significantly larger than that from the US to these countries.

Keywords: Time-varying copula; Markov switching; CoVaR; risk spillover; G7 stock markets (search for similar items in EconPapers)
JEL-codes: C21 G32 G38 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2017-08
New Economics Papers: this item is included in nep-cfn, nep-his and nep-rmg
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Journal Article: Risk spillover between the US and the remaining G7 stock markets using time-varying copulas with Markov switching: Evidence from over a century of data (2020) Downloads
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