Dynamic asymmetric tail dependence structure among multi-asset classes for portfolio management: Dynamic skew-t copula approach

Kakeru Ito and Toshinao Yoshiba

International Review of Economics & Finance, 2025, vol. 97, issue C

Abstract: This study proposes AC dynamic skew-t copula with cDCC model to capture the dynamic asymmetric tail dependence structure among multi-asset classes (government bonds, corporate bonds, equities, and REITs). We provide new evidence that lower tail dependence coefficients increased compared to upper ones for all pairs in the COVID-19 crash and the recent high inflation period, indicating that the diversification effect through multi-asset investment decreased. Our empirical analysis also shows that in terms of AIC and BIC, dynamic AC skew-t copula fits data of multi-asset classes better than other dynamic elliptical copulas because it can consider the above dependence structure characteristics. Furthermore, out-of-sample analysis reveals that considering an asymmetry of tail dependence structure at each point with an AC dynamic skew-t copula enhances expected shortfall (ES) estimation accuracy and the performance of a minimum ES portfolio. These results indicate that capturing dynamic asymmetric tail dependence is crucial for multi-asset portfolio management.

Keywords: Multi-asset investment; Portfolio management; Dynamic skew-t copula; Dynamic asymmetric tail dependence structure (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:97:y:2025:i:c:s1059056024007160

DOI: 10.1016/j.iref.2024.103724

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