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A copula-TGARCH approach of conditional dependence between oil price and stock market index: the case of Mexico

Author

Listed:
  • Arturo Lorenzo Valdés

    (Universidad de las Américas Puebla)

  • Leticia Armenta Fraire

    (Instituto Tecnológico y de Estudios Superiores de Monterrey)

  • Rocío Durán Vázquez

    (Universidad de las Américas Puebla)

Abstract

This study applied the Clayton and Gumbel copulas using the TGARCH model for marginal distribution of returns in order to describe the tail dependence between oil prices and the Mexican stock market index (IPC, Index of Prices and Quotations) on a weekly basis, from 2010 to 2014. We found that each of the analyzed series of stock index and oil returns can adequately be described with the proposed TGARCH model, and that there is some degree of conditional dependence in the tails, with greater volatility on the upper (right) tail and more stability on the lower (left) tail.

Suggested Citation

  • Arturo Lorenzo Valdés & Leticia Armenta Fraire & Rocío Durán Vázquez, 2016. "A copula-TGARCH approach of conditional dependence between oil price and stock market index: the case of Mexico," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 31(1), pages 47-63.
    • Handle: RePEc:emx:esteco:v:31:y:2016:i:1:p:47-63
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    More about this item

    Keywords

    cópulas; stock returns; oil returns; TGARCH;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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