Dependence Structures in Chinese and U.S. Financial Markets: A Time-varying Conditional Copula Approach

Jian Hu ()

No 808, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: In this paper, we use a Time-Varying Conditional Copula approach (TVCC) to model Chinese and U.S. stock markets‚ dependence structures with other financial markets. The AR-GARCH-t model is used to examine the marginals, while Normal and Generalized Joe-Clayton copula models are employed to analyze the joint distributions. In this pairwise analysis, both constant and time-varying conditional dependence parameters are estimated by a two-step maximum likelihood method. A comparative analysis of dependence structures in Chinese versus U.S. stock markets is also provided. There are three main findings: First, the time-varying-dependence model does not always perform better than constant-dependence model. This result has not previously been reported in the literature. Second, although previous research extensively reports that the lower tail dependence between stock markets tends to be higher than the upper tail dependence, we find a counterexample where the upper tail dependence is much higher than the lower tail dependence in some short periods. Last, Chinese financial market is relatively separate from other international financial markets in contrast to the U.S. market. The tail dependence with other financial markets is much lower in China than in the U.S.

Keywords: AR-GARCH-t model; Time-varying conditional copula; Dependence structure; Stock market. (search for similar items in EconPapers)
JEL-codes: C51 F36 G15 P52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cna
Date: 2008-09, Revised 2008-11
View list of references

Downloads: (external link)
ftp://ftp1.economics.smu.edu/WorkingPapers/2008/Hu/Hu-2008-11.pdf (application/pdf)

Related works:
Working Paper: Dependence Structures in Chinese and U.S. Financial Markets -- A Time-varying Conditional Copula Approach (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:smu:ecowpa:0808

Access Statistics for this paper

More papers in Departmental Working Papers from Southern Methodist University, Department of Economics
Address: Department of Economics, P.O. Box 750496, Southern Methodist University, Dallas, TX 75275-0496
Series data maintained by Bo Chen ().