The Contagion Box: Measuring Co-Movements in Financial Markets by Regression Quantiles

Abstract

We propose a semi-parametric approach to investigate whether co-dependence across markets increase in periods of extreme returns. Given that returns on one market fall in the extreme tail of their own distribution, we compute the conditional probability that returns on another market will also take on extreme values. An application to the “tequila†crisis is performedcontagion, conditional probabilities, CAViaR