A note on tail dependence regression

Qingzhao Zhang, Deyuan Li and Hansheng Wang

Journal of Multivariate Analysis, 2013, vol. 120, issue C, 163-172

Abstract: In financial practice, it is important to understand the dependence structure between the returns of individual assets and the market index. This is particularly true under extreme situations. Theoretically, this amounts to regressing the dependence relationship against a set of pre-specified predictive variables. To this end, we propose here a novel method called tail dependence regression. It assumes a tail dependence index model between individual assets and market index. Subsequently, such a tail dependence index is modeled as a linear combination of the predictors through a monotonic transformation. An approximate maximum likelihood method is then developed to estimate the unknown regression coefficients. The resulting estimator’s asymptotic properties are investigated theoretically. Numerical studies including both simulated and real datasets are presented for illustration purposes.

Keywords: Approximate maximum likelihood estimation; Tail dependence index; Tail dependence regression (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0047259X13000936
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:jmvana:v:120:y:2013:i:c:p:163-172

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

DOI: 10.1016/j.jmva.2013.05.007

Access Statistics for this article

Journal of Multivariate Analysis is currently edited by de Leeuw, J.

More articles in Journal of Multivariate Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().