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Modeling High Dimensional Asset Pricing Returns Using A Dynamic Skewed Copula Model

Author

Listed:
  • Yuting Gong

    (Shanghai University)

  • Jufang Liang

    (Hunan University)

  • Jie Zhu

    (Shanghai University)

Abstract

We propose a dynamic skewed copula to model multivariate dependence in asset returns in a flexible yet parsimonious way. We then apply the model to 50 exchange-traded funds. The new copula is shown to have better in-sample and out-of-sample performance than existing copulas. In particular, the dynamic model is able to capture increasing dependence patterns during financial crisis periods. It is crucial for investors to take dynamic dependence structure into account when modeling high dimensional returns.

Suggested Citation

  • Yuting Gong & Jufang Liang & Jie Zhu, 2019. "Modeling High Dimensional Asset Pricing Returns Using A Dynamic Skewed Copula Model," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 22(1), pages 1-28, April.
    • Handle: RePEc:idn:journl:v:22:y:2019:i:1a:p:1-28
    DOI: https://doi.org/10.21098/bemp.v22i1.1044
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    Cited by:

    1. Sha, Yezhou & Gao, Ran, 2019. "Which is the best: A comparison of asset pricing factor models in Chinese mutual fund industry," Economic Modelling, Elsevier, vol. 83(C), pages 8-16.

    More about this item

    Keywords

    Skewed Copula; Dynamic Model; High Dimensions; Multivariate Dependence;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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