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Stefan Straetmans

1 July 2001
WORKING PAPER SERIES - No. 71
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Abstract
We characterize asset return linkages during periods of stress by an extremal dependence measure. Contrary to correlation analysis, this non-parametric measure is not predisposed towards the normal distribution and can account for non-linear relationships. Our estimates for the G-5 countries suggest that simultaneous crashes in stock markets are about two times more likely than in bond markets. Moreover, stock-bond contagion is about as frequent as flight to quality from stocks into bonds. Extreme cross-border linkages are surprisingly similar to national linkages, illustrating a potential downside to international financial integration
JEL Code
G1 : Financial Economics→General Financial Markets
F3 : International Economics→International Finance
C49 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Other
17 March 2004
WORKING PAPER SERIES - No. 324
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Abstract
In this note we demonstrate that in affine models for bilateral exchange rates, the nature of return interdependence during crises depends on the tail properties of the fundamentals' distributions. We denote crisis linkages as either strong or weak, in the sense that the dependence remains or vanishes asymptotically. We show that if one currency return reaches crisis levels, the probability that the other currency breaks down as well vanishes asymptotically if the fundamentals' distributions exhibit light tails (like e.g. the normal). However, if the marginal distributions exhibit heavy tails, the probability that the other currency breaks down as well remains strictly positive even in the limit. This result implies that linearity and heavy tails are sufficient conditions for joint or contagious currency crises to happen systematically through fundamentals.
JEL Code
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
F31 : International Economics→International Finance→Foreign Exchange
G39 : Financial Economics→Corporate Finance and Governance→Other
C49 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Other
28 September 2005
WORKING PAPER SERIES - No. 527
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Abstract
This paper derives indicators of the severity and structure of banking system risk from asymptotic interdependencies between banks' equity prices. We use new tools available from multivariate extreme value theory to estimate individual banks' exposure to each other ("contagion risk") and to systematic risk. By applying structural break tests to those measures we study whether capital markets indicate changes in the importance of systemic risk over time. Using data for the United States and the euro area, we can also compare banking system stability between the two largest economies in the world. For Europe we assess the relative importance of cross-border bank spillovers as compared to domestic bank spillovers. The results suggest, inter alia, that systemic risk in the US is higher than in the euro area, mainly as cross-border risks are still relatively mild in Europe. On both sides of the Atlantic systemic risk has increased during the 1990s.
JEL Code
C49 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Other
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages