Assessing the structure dependence between the Spanish stock market and some international financial markets. A time-varying copula analysis

Antonio Pérez Cambriles and Sonia Benito Muela
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Antonio Pérez Cambriles: Phd student, Facultad de Ciencias Económicas y empresariales (UNED)
Sonia Benito Muela: Departamento de Análisis Económico de la Facultad de Ciencias Económicas y Empresariales (UNED).

Revista de Economía y Finanzas (REyF), 2023, vol. 1, issue 1, 87-122

Abstract: In this study we use time-varying copula analysis to investigate the dependence between the Spanish stock market, represented by the IBEX35 index, and some international stocks and commodities markets. The results indicate that: first, the European stock markets offer limited diversification possibilities. Second, American markets offer higher diversification possibilities than the European markets but the diversification may not work in an extreme market condition; here we find strong evidence of contagion effect. Third, the Asian markets outperform to the American markets offering higher diversifications possibilities even in extreme market conditions. Fourth, the assets negotiated in the Shanghai market may be considered hedge assets instead of diversifier assets; this feature is shared by the Bitcoin and Gold although therole of this last asset is highly volatile. These results provide useful information for those who seek to actively diversify their international portfolios and to manage their worldwide assets. Finally, we observe that degree of dependence derived from the correlation analysis is notably higher than the suggested by the copula analysis; this may be due the fact that correlation coefficient does not consider conditional heteroscedasticity so that correlations will be biased upwards.

Keywords: Dependence; Contagion effect; Copula; Diversification; Hedge (search for similar items in EconPapers)
JEL-codes: C13 C58 G11 G15 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:cud:journ2:v:1:y:2023:i:1:p:87-122

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