In this paper, we propose the use of static and dynamic copulas to study the leverage effect in the S&P 500 index. Copula models can conveniently separate the leverage effect from the marginal distributions of the return and its volatility. Daily volatility is proxied by a measure of realized volatility, which is constructed from high-frequency data. We uncover a significant leverage effect in the S&P 500 index, and this leverage effect is found to be changing over time in a highly persistent manner. Moreover the dynamic copula models are shown to outperform the static counterparts.
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Volume (Year): 5 (2008) Issue (Month): 4 (December) Pages: 221-227 Download reference. The following formats are available: HTML
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