Extreme Contagion in Equity Markets

25 Pages Posted: 16 Apr 2003

See all articles by Jorge A. Chan-Lau

Jorge A. Chan-Lau

International Monetary Fund (IMF) - International Capital Markets Department

Donald J. Mathieson

International Monetary Fund (IMF)

James Y. Yao

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: May 2002

Abstract

This study uses bivariate extremal dependence measures, based on the number of equity return co-exceedances in two markets, to quantify both negative and positive equity returns contagion in mature and emerging equity markets during the past decade. The results indicate (a) higher contagion for negative returns than for positive returns; (b) a secular increase in contagion in Latin America not matched in other regions; (c) global increases in contagion following the 1998 financial crises; and (d) that the use of simple correlations as a proxy for contagion could be misleading, as the former exhibit low correlation with extremal dependence measures of contagion.

Keywords: Contagion equity markets extreme value theory

JEL Classification: F30, G10, G15, C10

Suggested Citation

Chan-Lau, Jorge Antonio and Mathieson, Donald J. and Yao, James Y., Extreme Contagion in Equity Markets (May 2002). IMF Working Paper No. 02/98, Available at SSRN: https://ssrn.com/abstract=382502 or http://dx.doi.org/10.2139/ssrn.382502

Jorge Antonio Chan-Lau (Contact Author)

International Monetary Fund (IMF) - International Capital Markets Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Donald J. Mathieson

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

James Y. Yao

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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