A Coexceedance Approach on Financial Contagion

32 Pages Posted: 24 Sep 2013 Last revised: 22 Jun 2014

Date Written: June 6, 2014

Abstract

The paper sheds light on financial contagion within the Euro Area and Asia, and contagion from the Euro Area to Asia during two recent crises. Using both original constant threshold and Value-at-Risk to estimate extreme negative returns, the empirical findings indicate the existence of contagion from the Euro Area to Asia, and reveal that contagion in the Euro Area is more severe than in Asia. Applying the multinomial logit regression model, the paper also investigates how the macro-finance variables affect the coincidence of extreme negative returns (coexceedances). The results show that the probability of the occurrence of coexceedances is strongly explained by the idiosyncratic risks: the changes in exchange rates, the regional stock market volatility, and global shocks: the changes in the U.S. long-term interest rates, the TED spread. However, the paper finds the opposite reactions of coexceedances in the Euro Area and Asia to the changes in exchange rates. The global volatility index is only significant to explain the likelihood of coexceedances in the Euro Area, not in Asia.

Keywords: financial contagion, coexceedance, multinomial logit model

JEL Classification: G15, C53

Suggested Citation

Vo, Dinh-Vinh, A Coexceedance Approach on Financial Contagion (June 6, 2014). Available at SSRN: https://ssrn.com/abstract=2329693 or http://dx.doi.org/10.2139/ssrn.2329693
No contact information is available for Dinh-Vinh Vo

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
63
Abstract Views
1,050
rank
467,175
PlumX Metrics