The top line for each developed country-graph represents correlation with the 15 other developed countries; the bottom line is correlation with 13 emerging markets; and the middle line is correlation with both DMs and EMs.
… Our results suggest that correlations have been signifi cantly trending upward for both the developed markets [DMs] and emerging markets [EMs]. Further, the evidence clearly contradicts the decoupling hypothesis. Although the tail dependence is increasing through time for both EMs and DMs, the level of the tail dependence is still very low at the end of our sample period for EMs as compared to DMs. Therefore, while the correlation analysis suggests that the diversi cation potential of EMs has largely disappeared, this is contradicted by our fi ndings on tail dependence. Thus, even though diversification benefi ts might have lessened in the case of DMs, the case for EMs remains intact…
… while the correlation analysis suggests that the diversi cation potential of EMs has largely disappeared, this is contradicted by our fi ndings on tail dependence. The underlying intuition for this finding is that while financial crises in EMs are frequent, many of them are country-specifi c.