Market Fragility and International Market Crashes
62 Pages Posted: 7 Nov 2011 Last revised: 24 Dec 2012
Date Written: November 6, 2011
We extend the Pukthuanthong and Roll (2009) measure of integration to provide an estimate of systemic risk within international equity markets. Our measure indicates an increasing likelihood of market crashes. The conditional probability of market crashes, especially across markets, increases substantially following increases of our risk measure. High levels of our risk measure indicate the probability of a global crash is greater than the probability of local crash. That is, conditional on high levels of systemic risk, the probability of a severe crash across multiple markets is larger than the probability of a crash within a smaller number of markets.
Keywords: Financial crises, Systemic risk
JEL Classification: G01, G15
Suggested Citation: Suggested Citation