Identifying Dependence Structure among Equities in Indian Markets using Copulas

Vaibhav Grover

MPRA Paper from University Library of Munich, Germany

Abstract: In this study we have examined that assets returns in Indian markets do not follow an elliptical dependence structure; asymmetric tail dependence can be observed among asset returns particularly when the assets exhibit downside returns in a bearish market. We have used Elliptical, Archimedean and Canonical Vine copulas to model such dependence structure in large portfolios. Using certain goodness-of-fit tests we find that Archimedean copulas are insufficient to model the dependence among assets in a large portfolio. We have also compared copula models using an out-of-sample Value-at-Risk (VaR) calculation and comparing results to the historical data. It is observed that the Canonical Vine copulas consistently capture the variation in weekly and daily VaR values.

Keywords: copula; vine copulas; Value-at-Risk (search for similar items in EconPapers)
JEL-codes: G17 (search for similar items in EconPapers)
Date: 2015-08-27
New Economics Papers: this item is included in nep-ger and nep-rmg
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Citations: View citations in EconPapers (2)

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