The structure and degree of dependence: A quantile regression approach
The copula function defines the degree of dependence and the structure of dependence. This paper proposes an alternative framework to decompose the dependence using quantile regression. We demonstrate that the methodology provides a detailed picture of dependence including asymmetric and non-linear relationships. In addition, changes in the degree or structure of dependence can be modeled and tested for each quantile of the distribution. The empirical part applies the framework to three different sets of financial time-series and demonstrates substantial differences in dependence patterns among asset classes and through time. The analysis of 54 global equity markets shows that detailed information about the structure of dependence is crucial to adequately assess the benefits of diversification in normal times and crisis times.
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Mardi Dungey & Renee Fry & Vance Martin & Brenda GonzÃ¡lez-Hermosillo, 2004.
"Empirical Modeling of Contagion; A Review of Methodologies,"
IMF Working Papers
04/78, International Monetary Fund.
- Mardi Dungey & Renee Fry & Brenda Gonzalez-Hermosillo & Vance Martin, 2005. "Empirical modelling of contagion: a review of methodologies," Quantitative Finance, Taylor & Francis Journals, vol. 5(1), pages 9-24.
- Vance L. Martin & Brenda Gonzalez-Hermosillo, & Mardi Dungey & Renee A. Fry, 2004. "Empirical Modelling of Contagion: A Review of Methodologies," Econometric Society 2004 Australasian Meetings 243, Econometric Society.
- Martin, V. & Dungey & M., 2004. "Empirical Modelling of Contagion: A Review of Methodologies," Econometric Society 2004 Far Eastern Meetings 574, Econometric Society.
- Ling Hu, 2006. "Dependence patterns across financial markets: a mixed copula approach," Applied Financial Economics, Taylor & Francis Journals, vol. 16(10), pages 717-729.
- Lee, Bong Soo & Li, Ming-Yuan Leon, 2012. "Diversification and risk-adjusted performance: A quantile regression approach," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2157-2173.
- Bhatti, M. Ishaq & Nguyen, Cuong C., 2012. "Diversification evidence from international equity markets using extreme values and stochastic copulas," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(3), pages 622-646.
- Chuang, Chia-Chang & Kuan, Chung-Ming & Lin, Hsin-Yi, 2009.
"Causality in quantiles and dynamic stock return-volume relations,"
Journal of Banking & Finance,
Elsevier, vol. 33(7), pages 1351-1360, July.
- Chia-Chang Chuang & Chung-Ming Kuan & Hsin-yi Lin, 2007. "Causality in Quantiles and Dynamic Stock Return-Volume Relations," IEAS Working Paper : academic research 07-A006, Institute of Economics, Academia Sinica, Taipei, Taiwan.
- François Longin, 2001. "Extreme Correlation of International Equity Markets," Journal of Finance, American Finance Association, vol. 56(2), pages 649-676, 04.
- repec:cup:cbooks:9780521608275 is not listed on IDEAS
- Markus K. Brunnermeier & Lasse Heje Pedersen, 2007.
"Market liquidity and funding liquidity,"
LSE Research Online Documents on Economics
24478, London School of Economics and Political Science, LSE Library.
- Markus K. Brunnermeier & Lasse Heje Pedersen, 2007. "Market Liquidity and Funding Liquidity," NBER Working Papers 12939, National Bureau of Economic Research, Inc.
- Brunnermeier, Markus K & Pedersen, Lasse Heje, 2007. "Market Liquidity and Funding Liquidity," CEPR Discussion Papers 6179, C.E.P.R. Discussion Papers.
- Lasse Heje Pederson & Markus K Brunnermeier, 2007. "Market Liquidity and Funding Liquidity," FMG Discussion Papers dp580, Financial Markets Group.
- 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.
- Baur, Dirk & Schulze, Niels, 2005. "Coexceedances in financial markets--a quantile regression analysis of contagion," Emerging Markets Review, Elsevier, vol. 6(1), pages 21-43, April.
- Taimur Baig & Ilan Goldfajn, 1998.
"Financial Market Contagion in the Asian Crisis,"
IMF Working Papers
98/155, International Monetary Fund.
- Koedijk, Kees & Kole, Erik & Verbeek, Marno, 2006.
"Selecting Copulas for Risk Management,"
CEPR Discussion Papers
5652, C.E.P.R. Discussion Papers.
- Marcello Pericoli & Massimo Sbracia, 2003.
"A Primer on Financial Contagion,"
Journal of Economic Surveys,
Wiley Blackwell, vol. 17(4), pages 571-608, 09.
- Rodriguez, Juan Carlos, 2007. "Measuring financial contagion: A Copula approach," Journal of Empirical Finance, Elsevier, vol. 14(3), pages 401-423, June.
- repec:cup:cbooks:9780521845731 is not listed on IDEAS
- Ke Tang & Wei Xiong, 2010. "Index Investment and Financialization of Commodities," NBER Working Papers 16385, National Bureau of Economic Research, Inc.
- Koenker, Roger W & Bassett, Gilbert, Jr, 1978. "Regression Quantiles," Econometrica, Econometric Society, vol. 46(1), pages 33-50, January.
- Corsetti, Giancarlo & Pericoli, Marcello & Sbracia, Massimo, 2002.
"Some Contagion, Some Interdependence: More Pitfalls in Tests of Financial Contagion,"
CEPR Discussion Papers
3310, C.E.P.R. Discussion Papers.
- Corsetti, Giancarlo & Pericoli, Marcello & Sbracia, Massimo, 2005. "'Some contagion, some interdependence': More pitfalls in tests of financial contagion," Journal of International Money and Finance, Elsevier, vol. 24(8), pages 1177-1199, December.
- Andrew J. Patton, 2006. "Estimation of multivariate models for time series of possibly different lengths," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 21(2), pages 147-173.
- Xiaohong Chen & Roger Koenker & Zhijie Xiao, 2008.
"Copula-Based Nonlinear Quantile Autoregression,"
Cowles Foundation Discussion Papers
1679, Cowles Foundation for Research in Economics, Yale University.
- Xiaohong Chen & Roger Koenker & Zhijie Xiao, 2008. "Copula-Based Nonlinear Quantile Autoregression," Boston College Working Papers in Economics 691, Boston College Department of Economics.
- Xiaohong Chen & Roger Koenker & Zhijie Xiao, 2008. "Copula-based nonlinear quantile autoregression," CeMMAP working papers CWP27/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
- Chollete, Lorán & de la Peña, Victor & Lu, Ching-Chih, 2011. "International diversification: A copula approach," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 403-417, February.
- Sheppard, Kevin & Cappiello, Lorenzo & Engle, Robert F., 2003.
"Asymmetric dynamics in the correlations of global equity and bond returns,"
Working Paper Series
0204, European Central Bank.
- Lorenzo Cappiello & Robert F. Engle & Kevin Sheppard, 2006. "Asymmetric Dynamics in the Correlations of Global Equity and Bond Returns," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(4), pages 537-572.
- Ser-Huang Poon, 2004. "Extreme Value Dependence in Financial Markets: Diagnostics, Models, and Financial Implications," Review of Financial Studies, Society for Financial Studies, vol. 17(2), pages 581-610.
- Brian H. Boyer & Tomomi Kumagai & Kathy Yuan, 2006. "How Do Crises Spread? Evidence from Accessible and Inaccessible Stock Indices," Journal of Finance, American Finance Association, vol. 61(2), pages 957-1003, 04.
- Baur, Dirk G. & Fry, Renée A., 2009. "Multivariate contagion and interdependence," Journal of Asian Economics, Elsevier, vol. 20(4), pages 353-366, September.
- Ang, Andrew & Chen, Joseph, 2002. "Asymmetric correlations of equity portfolios," Journal of Financial Economics, Elsevier, vol. 63(3), pages 443-494, March.
- René Garcia & Georges Tsafack, 2009.
"Dependence Structure and Extreme Comovements in International Equity and Bond Markets,"
CIRANO Working Papers
- Garcia, René & Tsafack, Georges, 2011. "Dependence structure and extreme comovements in international equity and bond markets," Journal of Banking & Finance, Elsevier, vol. 35(8), pages 1954-1970, August.
- Nguyen, Cuong C. & Bhatti, M. Ishaq, 2012. "Copula model dependency between oil prices and stock markets: Evidence from China and Vietnam," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 22(4), pages 758-773.
- Albert S. Kyle, 2001. "Contagion as a Wealth Effect," Journal of Finance, American Finance Association, vol. 56(4), pages 1401-1440, 08.
When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:37:y:2013:i:3:p:786-798. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.