Modeling the leverage effect with copulas and realized volatility

Cathy Ning, Dinghai Xu and Tony Wirjanto ()

Finance Research Letters, 2008, vol. 5, issue 4, 221-227

Abstract: In this paper, we propose the use of static and dynamic copulas to study the leverage effect in the S&P 500 index. Copula models can conveniently separate the leverage effect from the marginal distributions of the return and its volatility. Daily volatility is proxied by a measure of realized volatility, which is constructed from high-frequency data. We uncover a significant leverage effect in the S&P 500 index, and this leverage effect is found to be changing over time in a highly persistent manner. Moreover the dynamic copula models are shown to outperform the static counterparts.

Keywords: Leverage; effect; Copulas; Tail; dependence; Realized; volatility; High; frequency; data (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544-6123(08)00045-7
Full text for ScienceDirect subscribers only

Related works:
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: https://EconPapers.repec.org/RePEc:eee:finlet:v:5:y:2008:i:4:p:221-227

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().