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Analysis of the joint distribution of stock and art indices: Attempt of a copular approach

Author

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  • Petrov, Nikita

    (National Research University Higher School of Economics, Moscow, Russian Federation)

  • Ratnikova, Tatiana

    (National Research University Higher School of Economics, Moscow, Russian Federation)

Abstract

The aim of this work is to study the relationship between traditional financial and stock indices and indices characterizing the profitability of the art market. The discovery of such a relationship allows to optimize the choice of the investment portfolio structure and hedge risks. The use of traditional tools for analyzing correlation dependencies (for example, VAR-models), based on the hypothesis of joint normal distributions of the analyzed indicators, is ineffective here. The approach of copulas seems more appropriate because of the possibility to take into account non-linear hierarchical structures of interconnections. To simulate the joint distribution function of returns of several indices (on Matisse paintings, on painting in general, prices of gold, shares of art companies and S&P500 index), an attempt was made to use nested Archimedean copulas of various configiurations. Based on the available data, it can be concluded that the distribution of returns of the above listed indices is sensitive to the configuration of the copula. The analysis of paired copulas in most cases did not allow detecting links between the indices. However, taking into account the hierarchy in the structure of the copula allows to see that the dependence of a pair of yields on «financial» indices (S&P500 and Shares) and the Matisse art- index is higher than the relationship between this pair and Art Global Index (on painting in general) and Gold.

Suggested Citation

  • Petrov, Nikita & Ratnikova, Tatiana, 2018. "Analysis of the joint distribution of stock and art indices: Attempt of a copular approach," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 52, pages 46-61.
  • Handle: RePEc:ris:apltrx:0355
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    References listed on IDEAS

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    More about this item

    Keywords

    art market; price indices; art indices; hedonic price function; multilevel regression; joint distribution; Archimedean copulas;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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