Abstract
Contagion has mostly been interpreted and tested as a break from a stable linear correlation of financial markets caused by an extraordinary shock. This paper argues that quantile regression can provide a tool to investigate alterations in other features of financial returns’ distribution caused by extraordinary shocks, thus providing additional understanding of the mechanism of financial shock propagation and its instability. Applying the technique to stock market returns, we find evidence that jumps in uncertainty have powerful contagious effects of a form different from an increase in markets’ correlation. These effects would not be detectable in standard contagion tests that search for increases in market correlation.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
