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Extreme co-movements and dependencies among major international exchange rates: A copula approach

Claudiu Albulescu (), Christian Aubin, Daniel Goyeau and Aviral Tiwari ()

The Quarterly Review of Economics and Finance, 2018, vol. 69, issue C, 56-69

Abstract: This paper investigates the bivariate dependence structure between four international exchange rates (EUR, GBP, CAD, JPY), against the US Dollar, using daily data for the time-span 1999–2014. We use different time-invariant and time-varying copula functions with different forms of tail dependence, and discover a positive dependence between all exchange rates, although the dependence is less strong for the JPY-pairs of exchange rates. Furthermore, we find evidence of symmetric tail dependence. Finally, the dependence is time-varying and intensifies after the onset of the recent global financial crisis, with the exception of the JPY-pairs. These findings provide additional insight for policy makers and for understanding spillover effects on FX market, given the fact that the tail dependence is either positive or negative, is time-varying, and has different structures.

Keywords: Exchange rates; Portfolio optimization; Dependence structure; Copulas; Tail dependence (search for similar items in EconPapers)
JEL-codes: C22 F31 G11 (search for similar items in EconPapers)
Date: 2018
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