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Time-varying asymmetric tail dependence of international equities markets

Chunyang Zhou and Xiao Qin

Pacific-Basin Finance Journal, 2021, vol. 68, issue C

Abstract: In this paper, we use the skewed t copula with a DCC (Dynamic Conditional Correlation) model to capture the time-varying asymmetric tail dependence among MSCI US, Europe and Emerging markets. The empirical results show that it is important to take account of asymmetric tail dependence when measuring extreme tail risk and forming international portfolio. We find the emerging markets can provide a good contribution to diversifying tail risk. Meanwhile, compared with the normal copula and t copula, the skewed t copula can produce superior out-of-sample portfolio performance in minimizing expected shortfall.

Keywords: Time-varying asymmetric tail dependence; Skewed t copula; Emerging markets (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.pacfin.2021.101589

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Handle: RePEc:eee:pacfin:v:68:y:2021:i:c:s0927538x21000962