Tail Risks in Developed and Emerging Markets——Test of Spillover,Contagion and Contagion Determinants
It is examined whether there are cross-market tail risk spillovers and contagion between developed markets and emerging markets during the financial crisis in this article.The determinants of cross-market tail risk contagion are analyzed using the multivariate and multi-quantile conditional autoregressive model(MVMQ-CAViaR)to measure the tail risk spillovers between developed and emerging markets during the subprime mortgage crisis and the European debt crisis.While the cross-market contagion effect of the tail risk in the crisis period is analyzed through the test of the difference of the degree of tail risk spillover between the stable period and the crisis period.A international factor model is used to test risk contagion channels,including macroeconomic fundamentals,global risks and investor behavior.The impact of investor behavior is considered from the three perspectives:investor information asymmetry,liquidity constraints and herd behavior.The fac-tors of investor behavior are incorporated into a unified framework to examine how to led to cross-market tail risk contagion during the two crises.Evidence shows that the two financial crises exist spillovers and contagion of tail risks between developed markets and emerging markets.Furthermore,macroeconomic fundamentals,global financial panic,and liquidity crunch are the main causes of cross-market contagion of tail risks.Last,investors'information asymmetry,liquidity constraints and herding behavior are also causes of the cross-market contagion of the tail risks of the two crises.
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