Joint distribution of stock indices: Methodological aspects of construction and selection of copula models

Alexander Knyazev (), Oleg Lepekhin () and Arkady Shemyakin ()
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Alexander Knyazev: Astrakhan State University, Astrakhan, Russian Federation
Oleg Lepekhin: Astrakhan State University, Astrakhan, Russian Federation
Arkady Shemyakin: University of St. Thomas, St. Paul, USA

Applied Econometrics, 2016, vol. 42, 30-53

Abstract: The paper discusses the practical aspects of modeling joint distribution of pairs of national stock indices via copula functions. Parameters of marginal distributions and the association parameter describing the dependence structure are estimated using empirical Bayes method numerically implemented with the help of random walk Metropolis algorithm. A comparison of parametric and semiparametric approaches to copula model construction is performed. The problem of selection of a class of pair copula functions approximating such empirical characteristics of stock indices dependence as Kendall’s concordance, joint empirical cumulative distribution function, and tail behavior.

Keywords: copula; stock indices; empirical Bayes; semiparametric approach; Metropolis algorithm (search for similar items in EconPapers)
JEL-codes: C11 C15 C58 G15 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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