Classifying returns as extreme: European stock and bond markets

•I consider the stock and bond markets of 14 EU countries.•I suggest a new classification scheme for extreme returns.•The new scheme considers all markets jointly and requires a shorter sample period.•The new scheme works very well for bond markets.•The new scheme works best for the most recent period for stock markets.

I consider extreme returns for the stock and bond markets of 14 EU countries using two classification schemes: One, the univariate classification scheme from the previous literature that classifies extreme returns for each market separately, and two, a novel multivariate classification scheme that classifies extreme returns for several markets jointly. The new classification scheme holds about the same information as the old one, while demanding a shorter sample period. The new classification scheme is useful.