Testing the bivariate distribution of daily equity returns using copulas. An application to the Spanish stock market

Oriol Roch Casellas and Antonio Alegre Escolano
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Antonio Alegre Escolano: Universitat de Barcelona

No 143, Working Papers in Economics from Universitat de Barcelona. Espai de Recerca en Economia

Abstract: In this paper we deal with the identification of dependencies between time series of equity returns. Marginal distribution functions are assumed to be known, and a bivariate chi-square test of fit is applied in a fully parametric copula approach. Several families of copulas are fitted and compared with Spanish stock market data. The results show that the t-copula generally outperforms other dependence structures, and highlight the difficulty in adjusting a significant number of bivariate data series.

Pages: 18 pages
Date: 2005
New Economics Papers: this item is included in nep-cfn and nep-ets
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