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Dynamic distributions and changing copulas

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  • Harvey, A.

Abstract

A copula models the relationships between variables independently of their marginal distributions. When the variables are time series, the copula may change over time. A statistical framework is suggested for tracking these changes over time. When the marginal distribu- tions change, pre-filtering is necessary before constructing the indicator variables on which the tracking of the copula is based. This entails solving an even more basic problem, namely estimating time-varying quantiles. The methods are applied to the Hong Kong and Korean stock market indices. Some interesting movements are detected, particularly after the attack on the Hong Kong dollar in 1997.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Cambridge in its series Cambridge Working Papers in Economics with number 0839.

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Date of creation: Sep 2008
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Handle: RePEc:cam:camdae:0839

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Web page: http://www.econ.cam.ac.uk/index.htm

Related research

Keywords: Concordance; contagion; exponentially weighted moving average; quantiles; signal extraction; tail dependence.;

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References

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  1. Andrew J. Patton, 2006. "Modelling Asymmetric Exchange Rate Dependence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(2), pages 527-556, 05.
  2. Koopman, S.J.M. & Shephard, N. & Doornik, J.A., 1998. "Statistical Algorithms for Models in State Space Using SsfPack 2.2," Discussion Paper 1998-141, Tilburg University, Center for Economic Research.
  3. Kristin J. Forbes & Roberto Rigobon, 2002. "No Contagion, Only Interdependence: Measuring Stock Market Comovements," Journal of Finance, American Finance Association, vol. 57(5), pages 2223-2261, October.
  4. Busettti, F. & Harvey, A., 2007. "Tests of time-invariance," Cambridge Working Papers in Economics 0701, Faculty of Economics, University of Cambridge.
  5. Kim, Tae-Hwan & White, Halbert, 2004. "On more robust estimation of skewness and kurtosis," Finance Research Letters, Elsevier, vol. 1(1), pages 56-73, March.
  6. Rodriguez, Juan Carlos, 2007. "Measuring financial contagion: A Copula approach," Journal of Empirical Finance, Elsevier, vol. 14(3), pages 401-423, June.
  7. Kee-Hong Bae & G. Andrew Karolyi & Rene M. Stulz, 2000. "A New Approach to Measuring Financial Contagion," NBER Working Papers 7913, National Bureau of Economic Research, Inc.
  8. Martin, V. & Dungey & M., 2004. "Empirical Modelling of Contagion: A Review of Methodologies," Econometric Society 2004 Far Eastern Meetings 574, Econometric Society.
  9. Harvey, Campbell R. & Siddique, Akhtar, 1999. "Autoregressive Conditional Skewness," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(04), pages 465-487, December.
  10. Jondeau, Eric & Rockinger, Michael, 2003. "Conditional volatility, skewness, and kurtosis: existence, persistence, and comovements," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1699-1737, August.
  11. Harvey, Andrew C & Fernandes, C, 1989. "Time Series Models for Count or Qualitative Observations: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(4), pages 422, October.
  12. van den Goorbergh, Rob W.J. & Genest, Christian & Werker, Bas J.M., 2005. "Bivariate option pricing using dynamic copula models," Insurance: Mathematics and Economics, Elsevier, vol. 37(1), pages 101-114, August.
  13. Sanjiv Ranjan Das & Raman Uppal, 2004. "Systemic Risk and International Portfolio Choice," Journal of Finance, American Finance Association, vol. 59(6), pages 2809-2834, December.
  14. DeRossi, G. & Harvey, A., 2007. "Quantiles, Expectiles and Splines," Cambridge Working Papers in Economics 0702, Faculty of Economics, University of Cambridge.
  15. DeRossi, G. & Harvey, A., 2006. "Time-Varying Quantiles," Cambridge Working Papers in Economics 0649, Faculty of Economics, University of Cambridge.
  16. Harvey, Andrew & Ruiz, Esther & Shephard, Neil, 1994. "Multivariate Stochastic Variance Models," Review of Economic Studies, Wiley Blackwell, vol. 61(2), pages 247-64, April.
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Cited by:
  1. Busetti, F. & Harvey, A., 2008. "When is a copula constant? A test for changing relationships," Cambridge Working Papers in Economics 0841, Faculty of Economics, University of Cambridge.
  2. Harvey, Andrew, 2010. "Tracking a changing copula," Journal of Empirical Finance, Elsevier, vol. 17(3), pages 485-500, June.

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