The use of copula functions for modeling the risk of investment in shares traded on the Warsaw Stock Exchange

Krzysztof Domino and Tomasz Błachowicz

Physica A: Statistical Mechanics and its Applications, 2014, vol. 413, issue C, 77-85

Abstract: In our work copula functions and the Hurst exponent calculated using the local Detrended Fluctuation Analysis (DFA) were used to investigate the risk of investment made in shares traded on the Warsaw Stock Exchange. The combination of copula functions and the Hurst exponent calculated using local DFA is a new approach. For copula function analysis bivariate variables composed of shares prices of the PEKAO bank (a big bank with high capitalization) and other banks (PKOBP, BZ WBK, MBANK and HANDLOWY in decreasing capitalization order) and companies from other branches (KGHM—mining industry, PKNORLEN—petrol industry as well as ASSECO—software industry) were used. Hurst exponents were calculated for daily shares prices and used to predict high drops of those prices. It appeared to be a valuable indicator in the copula selection procedure, since Hurst exponent’s low values were pointing on heavily tailed copulas e.g. the Clayton one.

Keywords: Econophysics; Warsaw Stock Exchange; Copula functions; Hurst exponent; Detrended fluctuation analysis; Copula selection procedure (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:413:y:2014:i:c:p:77-85

DOI: 10.1016/j.physa.2014.06.083

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