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Assessing Dependence Changes in the Asian Financial Market Returns Using Plots Based on Nonparametric Measures

  • Param Silvapulle

    ()

  • Xibin Zhang

    ()

This paper investigates whether or not there are significant changes in the dependence between the Thai equity market and six Asian markets - namely, Singaporean, Malaysian, Hong Kong, Korean, Indonesian and Taiwanese markets - due to 1997-July financial crisis. If so, this may be an indication that the underlying bivariate joint distributions capturing the dependence between the Thai market and these six markets have changed. We employ the chi-plot proposed by Fisher and Switzer (2001) and the Kendall plot proposed by Genest and Boies (2003) to examine the dependence in these six markets for the pre- and post-1997 financial crisis periods. We find that marginal distributions of all seven markets have notably changed due to this financial crisis, and that the functional forms of the underlying joint distributions generating the dependence in the Korean, Indonesian and Taiwan markets have also changed for the post-crisis period. It appears that the same parametric copula can capture the dependence in the Singapore, Malaysia and Hong Kong markets for both pre- and post-crisis periods, and that only the tail indices of bivariate distributions between the Thai and these three markets have changed. It is interesting to observe that the same conclusions can be drawn using both chi- and Kendall plots.

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File URL: http://www.buseco.monash.edu.au/ebs/pubs/wpapers/2006/wp9-06.pdf
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Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 9/06.

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Length: 29 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:msh:ebswps:2006-9
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  1. Andrew Patton, 2004. "Modelling Asymmetric Exchange Rate Dependence," Working Papers wp04-04, Warwick Business School, Finance Group.
  2. Timo Terasvirta & Clive W.J Granger & Andrew Patton, 2003. "Common factors in conditional distributions for Bivariate time series," FMG Discussion Papers dp455, Financial Markets Group.
  3. Genest C. & Boies J-C., 2003. "Detecting Dependence With Kendall Plots," The American Statistician, American Statistical Association, vol. 57, pages 275-284, November.
  4. Andrew Ang & Geert Bekaert, 2002. "International Asset Allocation With Regime Shifts," Review of Financial Studies, Society for Financial Studies, vol. 15(4), pages 1137-1187.
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