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Extreme downside risk spillover from the United States and Japan to Asia-Pacific stock markets

Liu, Lu LU (2014) In International Review of Financial Analysis 33. p.39-48
Abstract
This paper proposes a binary response model approach to measure and forecast extreme downside risks in Asia-Pacific markets given information on extreme downside risks in the U.S. and Japanese markets. The extreme downside risk of a market is measured as the occurrence of extreme downside movement—market returns falling below left-tail Value at Risk in a Markov switching framework. The empirical findings are consistent with the following notions. First, extreme downside movements of the S&P 500 and Nikkei 225 are significantly predictive for the likelihood of extreme downside movements in all the investigated Asia-Pacific markets. Second, the majority of Asia-Pacific markets become more sensitive to Japan's extreme downside risk when... (More)
This paper proposes a binary response model approach to measure and forecast extreme downside risks in Asia-Pacific markets given information on extreme downside risks in the U.S. and Japanese markets. The extreme downside risk of a market is measured as the occurrence of extreme downside movement—market returns falling below left-tail Value at Risk in a Markov switching framework. The empirical findings are consistent with the following notions. First, extreme downside movements of the S&P 500 and Nikkei 225 are significantly predictive for the likelihood of extreme downside movements in all the investigated Asia-Pacific markets. Second, the majority of Asia-Pacific markets become more sensitive to Japan's extreme downside risk when the Japanese market switches into high volatility periods, whereas the U.S. spillover effect is intensified only on Taiwan during high volatility periods in the U.S. Third, mainland China is the least sensitive to extreme downside risk in the U.S. and Japan, Australia is the most sensitive to the U.S., and Singapore is the most sensitive to Japan. (Less)
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author
organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Extreme downside risk, Risk spillover, Value at Risk, Granger causality in risk, Markov switching, Extreme value regression
in
International Review of Financial Analysis
volume
33
pages
39 - 48
publisher
North-Holland
external identifiers
  • wos:000338818500006
  • scopus:84902085149
ISSN
1057-5219
DOI
10.1016/j.irfa.2013.07.009
language
English
LU publication?
yes
id
8afa9d25-384e-4625-8b1d-6721a7e34d5c (old id 3955431)
date added to LUP
2013-08-02 10:30:12
date last changed
2017-09-24 03:14:03
@article{8afa9d25-384e-4625-8b1d-6721a7e34d5c,
  abstract     = {This paper proposes a binary response model approach to measure and forecast extreme downside risks in Asia-Pacific markets given information on extreme downside risks in the U.S. and Japanese markets. The extreme downside risk of a market is measured as the occurrence of extreme downside movement—market returns falling below left-tail Value at Risk in a Markov switching framework. The empirical findings are consistent with the following notions. First, extreme downside movements of the S&P 500 and Nikkei 225 are significantly predictive for the likelihood of extreme downside movements in all the investigated Asia-Pacific markets. Second, the majority of Asia-Pacific markets become more sensitive to Japan's extreme downside risk when the Japanese market switches into high volatility periods, whereas the U.S. spillover effect is intensified only on Taiwan during high volatility periods in the U.S. Third, mainland China is the least sensitive to extreme downside risk in the U.S. and Japan, Australia is the most sensitive to the U.S., and Singapore is the most sensitive to Japan.},
  author       = {Liu, Lu},
  issn         = {1057-5219},
  keyword      = {Extreme downside risk,Risk spillover,Value at Risk,Granger causality in risk,Markov switching,Extreme value regression},
  language     = {eng},
  pages        = {39--48},
  publisher    = {North-Holland},
  series       = {International Review of Financial Analysis},
  title        = {Extreme downside risk spillover from the United States and Japan to Asia-Pacific stock markets},
  url          = {http://dx.doi.org/10.1016/j.irfa.2013.07.009},
  volume       = {33},
  year         = {2014},
}