Dependence Structures in Chinese and U.S. Financial Markets: A Time-varying Conditional Copula Approach
AbstractIn this paper, we use a Time-Varying Conditional Copula approach (TVCC) to model Chinese and U.S. stock markets‚ dependence structures with other financial markets. The AR-GARCH-t model is used to examine the marginals, while Normal and Generalized Joe-Clayton copula models are employed to analyze the joint distributions. In this pairwise analysis, both constant and time-varying conditional dependence parameters are estimated by a two-step maximum likelihood method. A comparative analysis of dependence structures in Chinese versus U.S. stock markets is also provided. There are three main findings: First, the time-varying-dependence model does not always perform better than constant-dependence model. This result has not previously been reported in the literature. Second, although previous research extensively reports that the lower tail dependence between stock markets tends to be higher than the upper tail dependence, we find a counterexample where the upper tail dependence is much higher than the lower tail dependence in some short periods. Last, Chinese financial market is relatively separate from other international financial markets in contrast to the U.S. market. The tail dependence with other financial markets is much lower in China than in the U.S.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Southern Methodist University, Department of Economics in its series Departmental Working Papers with number 0808.
Date of creation: Sep 2008
Date of revision: Nov 2008
Contact details of provider:
Postal: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Web page: http://www.smu.edu/economics
AR-GARCH-t model; Time-varying conditional copula; Dependence structure; Stock market.;
Other versions of this item:
- Hu, Jian, 2008. "Dependence Structures in Chinese and U.S. Financial Markets -- A Time-varying Conditional Copula Approach," MPRA Paper 11401, University Library of Munich, Germany.
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sohnke M. Bartram & Gunter Dufey, 2001. "International Portfolio Investment: Theory, Evidence, and Institutional Framework," Finance 0107001, EconWPA.
- 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.
- François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, 04.
- Bollerslev, Tim, 1987. "A Conditionally Heteroskedastic Time Series Model for Speculative Prices and Rates of Return," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 542-47, August.
- Okimoto, Tatsuyoshi, 2008. "New Evidence of Asymmetric Dependence Structures in International Equity Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 43(03), pages 787-815, September.
- Rodriguez, Juan Carlos, 2007. "Measuring financial contagion: A Copula approach," Journal of Empirical Finance, Elsevier, vol. 14(3), pages 401-423, June.
- Flavin, Thomas J & Hurley, Margaret J & Rousseau, Fabrice, 2002. "Explaining Stock Market Correlation: A Gravity Model Approach," Manchester School, University of Manchester, vol. 70(0), pages 87-106, Supplemen.
- Ling Hu, 2006. "Dependence patterns across financial markets: a mixed copula approach," Applied Financial Economics, Taylor & Francis Journals, vol. 16(10), pages 717-729.
- Jondeau, Eric & Rockinger, Michael, 2006. "The Copula-GARCH model of conditional dependencies: An international stock market application," Journal of International Money and Finance, Elsevier, vol. 25(5), pages 827-853, August.
- Aloui, Riadh & Aïssa, Mohamed Safouane Ben & Nguyen, Duc Khuong, 2011.
"Global financial crisis, extreme interdependences, and contagion effects: The role of economic structure?,"
Journal of Banking & Finance,
Elsevier, vol. 35(1), pages 130-141, January.
- Riadh Aloui & Mohamed Safouane Ben Aissa & Khuong Nguyen Duc, 2010. "Global Financial Crisis, Extreme Interdependences, and Contagion E§ects: The Role of Economic Structure," Working Papers 15, Development and Policies Research Center (DEPOCEN), Vietnam.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Bo Chen).
If references are entirely missing, you can add them using this form.