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Two-Sample Testing for Tail Copulas with an Application to Equity Indices

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  • Sami Umut Can
  • John H. J. Einmahl
  • Roger J. A. Laeven

Abstract

A novel, general two-sample hypothesis testing procedure is established for testing the equality of tail copulas associated with bivariate data. More precisely, using a martingale transformation of a natural two-sample tail copula process, a test process is constructed, which is shown to converge in distribution to a standard Wiener process. Hence, from this test process a myriad of asymptotically distribution-free two-sample tests can be obtained. The good finite-sample behavior of our procedure is demonstrated through Monte Carlo simulations. Using the new testing procedure, no evidence of a difference in the respective tail copulas is found for pairs of negative daily log-returns of equity indices during and after the global financial crisis.

Suggested Citation

  • Sami Umut Can & John H. J. Einmahl & Roger J. A. Laeven, 2024. "Two-Sample Testing for Tail Copulas with an Application to Equity Indices," Journal of Business & Economic Statistics, Taylor & Francis Journals, vol. 42(1), pages 147-159, January.
    • Handle: RePEc:taf:jnlbes:v:42:y:2024:i:1:p:147-159
    DOI: 10.1080/07350015.2023.2166050
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