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Seoul Journal of Economics
[ Article ]
Seoul Journal of Economics - Vol. 28, No. 2, pp.171-198
ISSN: 1225-0279 (Print)
Print publication date 30 May 2015
Received 02 Jul 2014 Revised 04 May 2015 Accepted 06 May 2015

Extreme Risk Spillover in Financial Markets: Evidence from the Recent Financial Crisis

Jungbin Hwang ; Jae-Young Kim
Department of Economics, UC San Diego, 9500 Gilman Drive, La Jolla, CA 92093-0508 j6hwang@ucsd.edu
Department of Economics, Seoul National University, Seoul, 151-746, Korea, Tel: 82-2-880-6390 jykim017@snu.ac.kr

JEL Classification: C11, C14, C2, C3, C5

Abstract

This paper evaluates the data from the recent financial crisis to examine the risk spillover effects of financial markets value at risk (VaR), which captures the extreme behavior of an asset, is considered a measure of risk in an asset or in a market. We hypothesize that an extreme downside movement of returns in a market measured by a VaR has negative effects on other markets, causing a similar movement of returns in the latter. In particular, we postulate that in the recent crisis, an extreme downside movement in a major market affected other markets, and that these effects intensified. Our empirical results based on the data from several countries with various markets confirm these postulates.

Keywords:

Global Financial Crisis, Risk Spillover, Value at Risk

Acknowledgments

This work was supported by the National Research Foundation of Korea, grant numbers NRF-2013S1A5B8A01054955 and NRF-2014S1A3A2044637, and the Institute for Research in Finance and Economics and Institute for Economic Research in Seoul National University.

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