Dependence structure between the equity market and the foreign exchange market-A copula approach

Cathy Ning

Journal of International Money and Finance, 2010, vol. 29, issue 5, 743-759

Abstract: This paper investigates the dependence structure between the equity market and the foreign exchange market by using copulas. In particular, several copulas with different dependence structure are compared and used to directly model the underlying dependence structure. We find that there exists significant symmetric upper and lower tail dependence between the two financial markets, and the dependence remains significant but weaker after the launch of the euro. Our findings have important implications for both global investment risk management and international asset pricing by taking into account joint tail risk.

Keywords: Copulas; Tail; dependence; Dependence; structure; GARCH; Stock; return; Foreign; exchange; rate; return (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (132)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:29:y:2010:i:5:p:743-759

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