Abstract
We study the sensitivity of stock returns to the tail risk of major equity market indices, including the G10 countries. We model the sensitivity relationship via extreme downside hedging and estimate the parameters via a Bayesian graph structural learning method. The empirical application examines whether downside risk connections among the major stock markets are merely anecdotal or provide a signal of contagion and the nature of sensitivity among major equity markets during the global financial crisis and the coronavirus pandemic. The result showed that the COVID-19 crisis recorded the historically highest spike in the downside risk interconnectedness among the major equity market indices, suggesting higher financial market vulnerability in the coronavirus pandemic than during the global financial crisis.