Contagion testing in frontier markets under alternative stressful S&amp;P 500 market scenarios

Mahadeo, Scott M. R.; Heinlein, Reinhold; Legrenzi, Gabriella

doi:10.1016/j.najef.2021.101629

Cited by 5 publications

(1 citation statement)

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“…As such, we propose filtering the statistically identified shocks into relatively quiet and extreme episodes to inform our understanding of how market relationships change in extraordinary times. We build on Mahadeo et al (2022a), who augment such established non‐linear oil price measures for sorting oil market shocks into quiet and extreme episodes. We are, therefore, able to empirically timestamp extraordinary surprise and outlier scenarios in both the international crude oil and US stock markets.…”

Section: Introductionmentioning

confidence: 99%

Oil and US stock market shocks: Implications for Canadian equities

Heinlein

Mahadeo

2023

Canadian J of Economics

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Oil and US stock market shocks are relevant to Canadian equities because Canada is an oil exporter exposed to market developments in the wider continent. We evaluate how the relationship between Canadian stock market indices and such external shocks change under extraordinary events. To do this, we subject statistically identified oil and S&P 500 market shocks to a surprise filter, which detects shocks with the greatest magnitude occurring over a given lookback period, and an outlier filter, which detects extrema shocks that exceed a normal range. Then, we examine how the dependence structure between shocks and Canadian equities change under the extreme surprise and outlier episodes through various co‐moment spillover tests. Our results show co‐moments beyond correlation are important in reflecting the changes occurring in the relationships between external shocks and Canadian equities in extreme events. Additionally, the differences in findings under extreme positive and negative shocks provide evidence for asymmetric spillover effects from the oil and US stock markets to Canadian equities. Moreover, the observed heterogeneity in the relationships between disaggregated Canadian equities and shocks in the crude oil and S&P 500 markets are useful to policy‐makers for revealing sector‐specific vulnerabilities and provide portfolio diversification opportunities for investors to exploit.

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Section: Introductionmentioning

confidence: 99%