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Extreme Dependence in International Stock Markets

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  • Cathy Ning

    () (Department of Economics, Ryerson University, Toronto, Canada)

Abstract

This paper investigates the structure and degree of extreme dependence in international equity markets using carefully selected tools from the theory of copulas. We examine both the static and dynamic dependence via unconditional and conditional copulas. We find significant asymmetric tail dependence in equity markets, with the overall larger lower tail dependence than upper tail dependence. Moreover, in Europe and East Asia but not in North America, the extreme dependence is time-varying in both its structure and degree. Our results also indicate a higher intra-continental than inter-continental tail dependence. Our findings have important implications in global risk management strategies.

Suggested Citation

  • Cathy Ning, 2009. "Extreme Dependence in International Stock Markets," Working Papers 008, Ryerson University, Department of Economics.
  • Handle: RePEc:rye:wpaper:wp008
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    File URL: http://economics.ryerson.ca/workingpapers/wp008.pdf
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    Cited by:

    1. Cathy Q. Ning & Loran Chollete, 2009. "The Dependence Structure of Macroeconomic Variables in the US," Working Papers 005, Ryerson University, Department of Economics.
    2. Atskanov, Isuf, 2015. "Dynamic optimization of an investment portfolio on European stock markets using pair copulas," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 40(4), pages 84-105.
    3. Chollete, Loran & Pena, Victor de la & Lu, Ching-Chih, 2009. "International Diversification: A Copula Approach," UiS Working Papers in Economics and Finance 2009/27, University of Stavanger.
    4. Henryk Gurgul & Artur Machno, 2016. "Modeling dependence structure among European markets and among Asian-Pacific markets: a regime switching regular vine copula approach," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 24(3), pages 763-786, September.
    5. Chollete, Loran & de la Pena , Victor & Lu, Ching-Chih, 2009. "International Diversification: An Extreme Value Approach," UiS Working Papers in Economics and Finance 2009/26, University of Stavanger.
    6. Henryk Gurgul & Artur Machno, 2014. "The optimal portfolio under VaR and ES," Operations Research and Decisions, Wroclaw University of Technology, Institute of Organization and Management, vol. 2, pages 59-79.
    7. Chollete, Loran & Ning, Cathy, 2010. "Asymmetric Dependence in US Financial Risk Factors?," UiS Working Papers in Economics and Finance 2011/2, University of Stavanger.
    8. Chollete, Loran & Ning, Cathy, 2012. "Asymmetric Dependence in the US Economy: Application to Money and the Phillips Curve," UiS Working Papers in Economics and Finance 2012/1, University of Stavanger.
    9. Tong, Bin & Wu, Chongfeng & Zhou, Chunyang, 2013. "Modeling the co-movements between crude oil and refined petroleum markets," Energy Economics, Elsevier, vol. 40(C), pages 882-897.

    More about this item

    Keywords

    Copulas; Tail dependence; Time varying dependence; International financial markets; Risk diversification.;

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G01 - Financial Economics - - General - - - Financial Crises
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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