IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Financial Dependence Analysis: Applications of Vine Copulae

  • David E Allen

    (School of Accouting Finance & Economics, Edith Cowan University, Australia)

  • Mohammad.A. Ashraf

    (Indian Institute of Technology, Kharagpur, India)

  • Michael McAleer

    (Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam, Tinbergen Institute, The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, Spain, and Institute of Economic Research, Kyoto University, Japan)

  • Robert J Powell

    (School of Accouting Finance & Economics, Edith Cowan University, Australia)

  • Abhay K Singh

    (School of Accouting Finance & Economics, Edith Cowan University, Australia)

This paper features the application of a novel and recently developed method of statistical and mathematical analysis to the assessment of financial risk: namely Regular Vine copulas. Dependence modelling using copulas is a popular tool in financial applications, but is usually applied to pairs of securities. Vine copulas offer greater flexibility and permit the modelling of complex dependency patterns using the rich variety of bivariate copulas which can be arranged and analysed in a tree structure to facilitate the analysis of multiple dependencies. We apply Regular Vine copula analysis to a sample of stocks comprising the Dow Jones Index to assess their interdependencies and to assess how their correlations change in different economic circumstances using three different sample periods: pre-GFC (Jan 2005- July 2007), GFC (July 2007-Sep 2009), and post-GFC periods (Sep 2009 - Dec 2011). The empirical results suggest that the dependencies change in a complex manner, and there is evidence of greater reliance on the Student t copula in the copula choice within the tree structures for the GFC period, which is consistent with the existence of larger tails in the distributions of returns for this period. One of the attractions of this approach to risk modelling is the exibility in the choice of distributions used to model co-dependencies.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.kier.kyoto-u.ac.jp/DP/DP843.pdf
Download Restriction: no

Paper provided by Kyoto University, Institute of Economic Research in its series KIER Working Papers with number 843.

as
in new window

Length: 20pages
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:kyo:wpaper:843
Contact details of provider: Postal: Yoshida-Honmachi, Sakyo-ku, Kyoto 606-8501
Phone: +81-75-753-7102
Fax: +81-75-753-7193
Web page: http://www.kier.kyoto-u.ac.jp/eng/index.html
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. David E. Allena & Ron Amrama & Michael McAleer, 2011. "Volatility Spillovers from the Chinese Stock Market to Economic Neighbours," Working Papers in Economics 11/42, University of Canterbury, Department of Economics and Finance.
  2. HEINEN, Andréas & VALDESOGO, Alfonso, 2009. "Asymmetric CAPM dependence for large dimensions: the Canonical Vine Autoregressive Model," CORE Discussion Papers 2009069, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. J. Andrew Coutts & Terence Mills & Jennifer Roberts, 1995. "Misspecification of the market model: the implications for event studies," Applied Economics Letters, Taylor & Francis Journals, vol. 2(5), pages 163-165.
  4. James H. Stock & Mark W. Watson, 1993. "Introduction to "Business Cycles, Indicators and Forecasting"," NBER Chapters, in: Business Cycles, Indicators and Forecasting, pages 1-10 National Bureau of Economic Research, Inc.
  5. Diebold & Rudebusch, . "Measuring Business Cycle: A Modern Perspective," Home Pages _061, University of Pennsylvania.
  6. Lorán Chollete & Andréas Heinen & Alfonso Valdesogo, 2009. "Modeling International Financial Returns with a Multivariate Regime-switching Copula," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 7(4), pages 437-480, Fall.
  7. Aleksey Min & Claudia Czado, 2010. "Bayesian Inference for Multivariate Copulas Using Pair-Copula Constructions," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 8(4), pages 511-546, Fall.
  8. MArdi Dungey & Renee Fry & Brenda Gonzales-Hermosillo & Vance L. Martin & Chrismin Tang, 2008. "Are Financial Crises Alike?," CAMA Working Papers 2008-15, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  9. Aas, Kjersti & Czado, Claudia & Frigessi, Arnoldo & Bakken, Henrik, 2009. "Pair-copula constructions of multiple dependence," Insurance: Mathematics and Economics, Elsevier, vol. 44(2), pages 182-198, April.
  10. Smith, Michael & Min, Aleksey & Almeida, Carlos & Czado, Claudia, 2010. "Modeling Longitudinal Data Using a Pair-Copula Decomposition of Serial Dependence," Journal of the American Statistical Association, American Statistical Association, vol. 105(492), pages 1467-1479.
  11. repec:sae:ecolab:v:16:y:2006:i:2:p:1-2 is not listed on IDEAS
  12. Baillie, Richard T. & Bollerslev, Tim & Mikkelsen, Hans Ole, 1996. "Fractionally integrated generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 74(1), pages 3-30, September.
  13. Beatriz Mendes & Mariângela Semeraro & Ricardo Leal, 2010. "Pair-copulas modeling in finance," Financial Markets and Portfolio Management, Springer, vol. 24(2), pages 193-213, June.
  14. Joe, Harry & Li, Haijun & Nikoloulopoulos, Aristidis K., 2010. "Tail dependence functions and vine copulas," Journal of Multivariate Analysis, Elsevier, vol. 101(1), pages 252-270, January.
  15. Daniel Berg, 2009. "Copula goodness-of-fit testing: an overview and power comparison," The European Journal of Finance, Taylor & Francis Journals, vol. 15(7-8), pages 675-701.
  16. James H. Stock & Mark W. Watson, 1993. "Business Cycles, Indicators and Forecasting," NBER Books, National Bureau of Economic Research, Inc, number stoc93-1, April.
  17. Fama, Eugene F, et al, 1969. "The Adjustment of Stock Prices to New Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 10(1), pages 1-21, February.
  18. Makram Talih & Nicolas Hengartner, 2005. "Structural learning with time-varying components: tracking the cross-section of financial time series," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 67(3), pages 321-341.
  19. Hamilton, James D, 1989. "A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle," Econometrica, Econometric Society, vol. 57(2), pages 357-84, March.
  20. Arthur F. Burns & Wesley C. Mitchell, 1946. "Measuring Business Cycles," NBER Books, National Bureau of Economic Research, Inc, number burn46-1, April.
  21. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-33, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:kyo:wpaper:843. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ryo Okui)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.