Extreme downside shocks in international financial markets: transmission boundaries and typical events
Year: 2025
Type: article
Abstract: Extreme downside shocks lead to significant harm within financial markets, thereby threatening global economic stability. To investigate the cross-market transmission of extreme downside shocks and their heterogeneity, this paper extends the sectional multivariate extreme value copula (SMEVC) for empirical analysis across major international financial markets. The “boundary effect” of extreme downside shocks is uncovered, along with the quantification of the “co-movement effect” and “mutual triggering effect” across markets. The findings indicate that extreme downside shocks transmitted through strongly connected markets tend to fall within a narrower range, whereas those in weakly connected markets are more widely dispersed. Furthermore, extreme downside shocks reveal a stronger “co-movement effect” within intraregional markets, generating distinct regional connections, especially in Europe. Meanwhile, the U.S. market exhibits a notable “co-movement effect” with markets across different regions. Finally, adverse economic events generate stronger and more transmissible extreme downside shocks, whereas political events and natural disasters have a more limited impact. In contrast, public health crises such as COVID-19 prompt severe global shocks. This paper offers new insights into financial risk management and policymaking, emphasizing the importance of mitigating extreme downside shocks across markets in a globally integrated economy.
Authors: Lu Deng, Xinzhu Liu, Xinhong Chen
Institution: Central University of Finance and Economics
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: gold
Estimated APC paid: $1,930
Awards: G2484923114, G4034259876, G640909919
OpenAlex ID: W4414216055