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Copula-based measures of dependence structure in assets returns

Viviana Fernandez

No 228, Documentos de Trabajo from Centro de Economía Aplicada, Universidad de Chile

Abstract: Copula modeling has become an increasingly popular tool in finance to model assets returns dependency. In essence, copulas enable us to extract the dependence structure from the joint distribution function of a set of random variables and, at the same time, to separate the dependence structure from the univariate marginal behavior. In this study, based on U.S. stock data, we illustrate how tail-dependency tests may be misleading as a tool to select a copula that closely mimics the dependency structure of the data. This problem becomes more severe when the data is scaled by conditional volatility and/or filtered out for serial correlation. The discussion is complemented, under more general settings, with Monte Carlo simulations.

Date: 2006
New Economics Papers: this item is included in nep-cmp, nep-ecm, nep-fmk and nep-rmg
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Citations: View citations in EconPapers (2)

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Journal Article: Copula-based measures of dependence structure in assets returns (2008) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:edj:ceauch:228

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