The impact of global financial crisis on the dependence structure of equity markets and on risk management

Ahmed Ghorbel () and Abdelwahed Trabelsi

International Journal of Managerial and Financial Accounting, 2013, vol. 5, issue 1, 1-32

Abstract: In this work, we use a time varying copula model to investigate the impact of the global financial crisis on dependence between US and each of six major stock markets and on risk management strategies. The model is implemented with an AR-GARCH-t for the marginal distribution and the extreme value copula for the joint distribution, which allow taking into account non-linear dependence, tails behaviour and their development over time. We investigate whether there are significant changes in the time-varying dependence structure of market and in VaR and ES measures especially during global financial crises period. Empirical results show that market dependences between US, European and Brazilian markets tend to increase considerably during crisis period and this increase started around the beginning of 2008. In the other hand, market volatility registered record levels around the end of 2008 due to the increase of the degree of uncertainty in this period. As a consequence, investors will allow more amounts to cover against negative evolution of portfolio value.

Keywords: dependence structure; time-varying copulas; multivariate extreme value theory; MEVT; value-at-risk; VaR; expected shortfall; global financial crisis; equity markets; risk management; USA; United States; Europe; Brazil; market volatility; uncertainty; portfolio value. (search for similar items in EconPapers)
Date: 2013
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