Copula–GARCH Time-Varying Tail Dependence

Jiaqi Chen and Jeffery W. Gunther

A chapter in 30th Anniversary Edition, 2012, pp 411-425 from Emerald Group Publishing Limited

Abstract: Tail-dependence evolution for the symmetrized Joe–Clayton copula is proposed to depend on an exponentially weighted moving average (EWMA) of the absolute difference in probability integral transforms. Using these dynamics, time-varying tail dependence between bank and insurance equity prices is assessed in a parametric copula, generalized autoregressive conditional heteroscedastic framework. The results suggest a relatively long lag and support the EWMA lag structure as an effective estimation vehicle. Tail dependence is shown often to tend higher during periods of market stress.

Keywords: Copula; dependence; time-varying (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eme:aecozz:s0731-9053(2012)0000030018

DOI: 10.1108/S0731-9053(2012)0000030018

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