Extreme Dependence in International Stock Markets

This paper investigates the structure and degree of extreme dependence in international equity markets using carefully selected tools from the theory of copulas. We examine both the static and dynamic dependence via unconditional and conditional copulas. We Önd signiÖcant asymmetric tail dependence in equity markets, with the overall larger lower tail dependence than upper tail dependence. Moreover, in Europe and East Asia but not in North America, the extreme dependence is time-varying in both its structure and degree. Our results also indicate a higher intra-continental than inter-continental tail dependence. Our Öndings have important implications in global risk management strategies.