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Joint distribution of stock indices: Methodological aspects of construction and selection of copula models

Author

Listed:
  • Knyazev, Alexander

    (Astrakhan State University, Astrakhan, Russian Federation)

  • Lepekhin, Oleg

    (Astrakhan State University, Astrakhan, Russian Federation)

  • Shemyakin, Arkady

    (University of St. Thomas, St. Paul, USA)

Abstract

The paper discusses the practical aspects of modeling joint distribution of pairs of national stock indices via copula functions. Parameters of marginal distributions and the association parameter describing the dependence structure are estimated using empirical Bayes method numerically implemented with the help of random walk Metropolis algorithm. A comparison of parametric and semiparametric approaches to copula model construction is performed. The problem of selection of a class of pair copula functions approximating such empirical characteristics of stock indices dependence as Kendall’s concordance, joint empirical cumulative distribution function, and tail behavior.

Suggested Citation

  • Knyazev, Alexander & Lepekhin, Oleg & Shemyakin, Arkady, 2016. "Joint distribution of stock indices: Methodological aspects of construction and selection of copula models," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 42, pages 30-53.
  • Handle: RePEc:ris:apltrx:0290
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    References listed on IDEAS

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    More about this item

    Keywords

    copula; stock indices; empirical Bayes; semiparametric approach; Metropolis algorithm;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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