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What is the Best Approach to Measure the Interdependence between Different Markets?

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  • Avouyi-Dovi, S.
  • Guégan, D.
  • Ladoucette, S.

Abstract

In order to measure the interdependence between different markets, we investigate and compare different measures of dependence including cross-correlation, conditional correlation, concordance and correlation in tails. In the latter case, we use the notion of copula and we define two kinds of diagnoses which enable us to adjust the joint empirical tail distribution in the case of two or three markets for the best copulas. In particular, this approach makes it possible to understand the evolution of the interdependence of more than two markets in the tails, in particular, when extremal values (which correspond to a shock) induce some turmoil in the evolution of the markets.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 95.

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Length: 64 pages
Date of creation: 2002
Date of revision:
Handle: RePEc:bfr:banfra:95

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Postal: Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS
Web page: http://www.banque-france.fr/
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Related research

Keywords: Interdependence; Conditional correlation; Concordance; Functions copulas.;

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  1. C John McDermott & Alasdair Scott, 1999. "Concordance in business cycles," Reserve Bank of New Zealand Discussion Paper Series G99/7, Reserve Bank of New Zealand.
  2. King, Mervyn A & Wadhwani, Sushil, 1990. "Transmission of Volatility between Stock Markets," Review of Financial Studies, Society for Financial Studies, vol. 3(1), pages 5-33.
  3. Don Harding & Adrian Pagan, 2000. "Disecting the Cycle: A Methodological Investigation," Econometric Society World Congress 2000 Contributed Papers 1164, Econometric Society.
  4. McNeil, Alexander J. & Frey, Rudiger, 2000. "Estimation of tail-related risk measures for heteroscedastic financial time series: an extreme value approach," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 271-300, November.
  5. Robert G. King & Charles I. Plosser, 1989. "Real business cycles and the test of the Adelmans," Proceedings, Federal Reserve Bank of San Francisco.
  6. Raymond Brummelhuis & Dominique Guegan, 2005. "Multi-period conditional distribution functions for heteroscedastic models with applications to VaR," Post-Print halshs-00179336, HAL.
  7. Don Harding & Adrian Pagan, 1999. "Knowing the Cycle," Melbourne Institute Working Paper Series wp1999n12, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
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