Dependence Structure and Portfolio Diversification on Central European Stock Markets

Filip Žikeš ()
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Filip Žikeš: Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic, http://ies.fsv.cuni.cz/

No 2007/02, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper studies the dependence structure on Central European, German and UK stock markets within the framework of a semiparametric copula model for weekly stock index return pairs. Although the linear correlation is much lower, we find similar degree of lower tail dependence as between returns on stocks indices representing developed markets. We show in a simulation exercise that the implications of the estimated nonlinear dependencies for portfolio selection and risk management may be not only statisticaly but also economicaly important.

Keywords: dependence structure; tail dependence; portfolio selection; risk measures (search for similar items in EconPapers)
JEL-codes: C46 G11 G15 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2007-01, Revised 2007-01
New Economics Papers: this item is included in nep-fmk and nep-rmg
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