This paper uses the novel quantile coherency approach to examine the tail dependence network of 49 international stock markets in the frequency domain. We find that geographical proximity and state of market development are important factors in stock markets networks. Both the short- and long-run connectedness significantly increased after the global financial crisis and spillover is higher during bearish market states, highlighting the possibility of contagion effect mainly among developed markets. Frontier and emerging markets are relatively less connected. These findings have implications for international equity market diversification and risk management.

Link: Quantile coherency networks of international stock markets

comments (1)

  • Martin

    Interesting points of view in the last two articles.

    It is fact that equity market diversification is changing with time. To find optimal portfolio for the future with weights of assets in portfolio (using Markowitz’s return-risk point of view) is needed to know future – expected return and risk.

    Our world is more dynamic as we can imagine – changing connection of markets, presence of fat tails… Nobody knows future.
    However, adding changes and respecting facts that corrrelations acrross assets are changing in the time, could be very useful in creation of portfolios. Then – additional higher risk could be compensating with much higher return in long-term period (except global recession and global financial crisis 🙂

    Great to see progress via adding new dynamic parts to standard Markowitz’s portfolio theory.


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