The extreme-value dependence of Asia-Pacific equity markets

In this paper we study the dependence structure of extreme realization of returns between seven Asia-Pacific stock markets and the U.S. Methodologically we apply the multivariate extreme value theory that best suits to the problem under investigation. The evidence we obtain indicates that extreme correlations are not substantially different from the unconditional ones or from those obtained from multivariate GARCH models. A clustering analysis shows that the Asia-Pacific countries do not belong to a distinct block of countries on the basis of the extreme correlations we have estimated. The policy implications of our study are that the benefits from portfolio diversification with assets from the Asia-Pacific stock markets are not eroded during crisis periods, in the sense that no correlation breakdown has been observed.