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Measuring dependence in financial crisis: A copula approach for Mexico and Brazil

Author

Listed:
  • Arturo Lorenzo Valdés

    () (Professor, Finance and Accounting Academic Department, Universidad de las Américas Puebla. San Andrés Cholula, Pue. Mexico.)

  • Ricardo Massa Roldán

    () (Professor, Department of Economics and Finance, Business Division, Tecnológico de Monterrey, Santa Fe Campus, Mexico City.)

Abstract

This paper studies the dependence in Mexican and Brazilian financial markets through a method that has proved to obtain better results —along with the characterization of non-linearity and asymptotic dependence— than the use of simple correlation analysis: the copula approach. Using weekly returns of the IPyC and IBOV from January 1975 to November 2010 we compared the results of numerical methods that solved for the Kendall’s tau in three types of copulas: the two-dimensional Gaussian copula, the bivariate Gumbel copula, and the bivariate Clayton copula. Also, we used different study periods in order to find evidence of changing dependence structures during financial turmoils, like the one that occurred in 2008. This paper points out that the dependence structure between the above mentioned markets strengthened after the financial crisis of 2008.

Suggested Citation

  • Arturo Lorenzo Valdés & Ricardo Massa Roldán, 2013. "Measuring dependence in financial crisis: A copula approach for Mexico and Brazil," Economía Mexicana NUEVA ÉPOCA, , vol. 0(2), pages 341-355, July-Dece.
  • Handle: RePEc:emc:ecomex:v:22:y:2013:i:2:p:341-355
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    File URL: http://www.economiamexicana.cide.edu/num_anteriores/XXII-2/04-EM_Lorenzo_valdes.pdf
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    References listed on IDEAS

    as
    1. Anders C. Johansson, 2011. "Financial Markets in East Asia and Europe during the Global Financial Crisis," The World Economy, Wiley Blackwell, vol. 34, pages 1088-1105, July.
    2. Patton, Andrew J, 2001. "Modelling Time-Varying Exchange Rate Dependence Using the Conditional Copula," University of California at San Diego, Economics Working Paper Series qt01q7j1s2, Department of Economics, UC San Diego.
    3. Lorán Chollete & Andréas Heinen & Alfonso Valdesogo, 2009. "Modeling International Financial Returns with a Multivariate Regime-switching Copula," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 7(4), pages 437-480, Fall.
    4. Zakoian, Jean-Michel, 1994. "Threshold heteroskedastic models," Journal of Economic Dynamics and Control, Elsevier, vol. 18(5), pages 931-955, September.
    5. 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.
    6. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
    7. Rodriguez, Juan Carlos, 2007. "Measuring financial contagion: A Copula approach," Journal of Empirical Finance, Elsevier, vol. 14(3), pages 401-423, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    financial crises; dependence; copulas.;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • F3 - International Economics - - International Finance

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