A Comparison Study of Copula Models for Europea Financial Index Returns

Paula V. Tofoli, Flavio A. Ziegelmann and Osvaldo Candido

International Journal of Economics and Finance, 2017, vol. 9, issue 10, 155-178

Abstract: In this paper, we introduce a new approach to modeling dependence between international financial returns over time, combining time-varying copulas and the Markov switching model. We apply these copula models and also those proposed by Patton (2006), Jondeau and Rockinger (2006) and Silva Filho, Ziegelmann, and Dueker (2012) to the return data of the FTSE-100, CAC-40 and DAX indexes. We are particularly interested in comparing these methodologies in terms of the resulting dynamics of dependence and the models¡¯ abilities to forecast possible capital losses. Because risks related to extreme events are important for risk management, we compare and select the models based on VaR forecasts. Interestingly, all the models identify a long period of high dependence between the returns beginning in 2007, when the subprime crisis was evolving. Surprisingly, the elliptical copulas perform best in forecasting the extreme quantiles of the portfolios returns.

Keywords: copula-GARCH; IFM method; Markov switching model; time-varying copulas; value at risk (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://ccsenet.org/journal/index.php/ijef/article/view/70527/38434 (application/pdf)
http://ccsenet.org/journal/index.php/ijef/article/view/70527 (text/html)

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:ibn:ijefaa:v:9:y:2017:i:10:p:155-178

Access Statistics for this article

More articles in International Journal of Economics and Finance from Canadian Center of Science and Education Contact information at EDIRC.
Bibliographic data for series maintained by Canadian Center of Science and Education ().