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Analysis of co-movements between the capital markets in Brazil and the United States

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Author Info

  • Daniel Reed Bergmann

    (Fundação Instituto de Administração (FIA))

  • José Roberto Ferreira Savoia

    (University of São Paulo (USP))

  • Wesley Mendes da Silva

    (Getúlio Vargas Foundation (EAESP-FGV))

  • Mauri Aparecido de Oliveira

    (Federal University of São Paulo (UNIFESP))

  • Wilson Toshiro Nakamura

    (Presbiterian University Mackenzie)

Registered author(s):

    Abstract

    In this article copula theory is used to analyze the co-movements between the Brazilian and American capital markets. To formulate an effective asset allocation strategy, it is important to understand extreme events – both positive (booms) and negative (crashes) – and their effects on markets. The market indexes used are the Ibovespa and the S&P 500, covering the period from March 2001 to April 2007. We tested the adherence to the log-returns of the main copulas found in the financial literature, using the following criteria: log-likelihood, Akaike information criterion and Bayesian information criterion. The results show that the symmetrized Joe-Clayton copula is most suitable to model the dependence structure between the log-returns of the Ibovespa and the S&P500. This work differs from some previous ones (e.g., Mendes & Moretti, 2005 and Canela & Collazo, 2005) because we take into account the modeling of dynamic copulas, as introduced by Patton (2006). Finally, from the tail-dependence indexes over time, it can be concluded that the occurrence of crashes in the American market tends to affect the Brazilian market more than does the occurrence of booms.

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    File URL: http://www.bbronline.com.br/public/edicoes/8_4/artigos/clanksc2jj1122011175017.pdf
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    Bibliographic Info

    Article provided by Fucape Business School in its journal Brazilian Business Review.

    Volume (Year): 8 (2011)
    Issue (Month): 4 (October)
    Pages: 118-132

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    Handle: RePEc:bbz:fcpbbr:v:8:y:2011:i:4:p:118-132

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    Postal: Fucape Business School Brazilian Business Review Av. Fernando Ferrari, 1358, Boa Vista CEP 29075-505 Vitória-ES
    Phone: +55 27 4009-4423
    Fax: +55 27 4009-4422
    Web page: http://www.bbronline.com.br/
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    Related research

    Keywords: Co-movements; copulas; asset returns; financial strategy.;

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