Global financial crisis and dependence risk analysis of sector portfolios: a vine copula approach

Jose Arreola Hernandez, Shawkat Hammoudeh, Duc Khuong Nguyen, Mazin A. M. Al Janabi and Juan Reboredo

MPRA Paper from University Library of Munich, Germany

Abstract: We use regular vine (r-vine), canonical vine (c-vine) and drawable vine (d-vine) copulas to examine the dependence risk characteristics of three 20-stock portfolios from the retail, manufacturing and gold-mining equity sectors of the Australian market in periods before, during and after the 2008-2009 global financial crisis (GFC). Our results indicate that the retail portfolio is less risky than the manufacturing counterpart in the crisis period, while the gold-mining portfolio is less risky than both the retail and manufacturing sector portfolios. Both the retail and gold stocks display a higher propensity to yield positively skewed returns in the crisis periods, contrary to the manufacturing stocks. The r-vine is found to best capture the multivariate dependence structure of the stocks in the retail and gold-mining portfolios, while the d-vine does it for the manufacturing stock portfolio. These findings could be used to develop dependence risk and investment risk-adjusted strategies for investment, rebalancing and hedging which more adequately account for the downside risk in various market conditions.

Keywords: vine copulas; risk analysis; dependence structure; retail and manufacturing stocks (search for similar items in EconPapers)
JEL-codes: C32 C51 G11 (search for similar items in EconPapers)
Date: 2014-12, Revised 2016-08
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Global financial crisis and dependence risk analysis of sector portfolios: a vine copula approach (2017)
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