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Modeling the Dependence Structure of the WIG20 Portfolio Using a Pair-copula Construction

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  • Ryszard Doman

    ()
    (Adam Mickiewicz University in Poznan)

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    Abstract

    Elliptical distributions commonly applied to modeling the returns of stocks in high-dimensional portfolio are not capable of adequate describing the dependence between the components when their statistical properties are very diverse. The MGARCH and standard dynamic copula models are often of little usefulness in such cases. In this paper, we apply a methodology called the pair-copula decomposition to model the joint conditional distribution of the returns on stocks constituting the WIG20 index, and show some advantage of this construction over the approach using the t Student DCC model.

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    File URL: http://www.dem.umk.pl/dem/archiwa/v10/03_RDoman.pdf
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    Bibliographic Info

    Article provided by Uniwersytet Mikolaja Kopernika in its journal Dynamic Econometric Models.

    Volume (Year): 10 (2010)
    Issue (Month): ()
    Pages: 31-42

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    Handle: RePEc:cpn:umkdem:v:10:y:2010:p:31-42

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    Web page: http://www.wydawnictwoumk.pl

    Related research

    Keywords: dependence; portfolio; copula; pair-copula construction.;

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