TailCoR

Abstract

Economic and financial crises are characterised by unusually large events. These tail events co-move because of linear and/or nonlinear dependencies. We introduce TailCoR, a metric that combines (and disentangles) these linear and non-linear dependencies. Tail-CoR between two variables is based on the tail inter quantile range of a simple projection.It is dimension-free, it performs well in small samples, and no optimisations are needed.