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The Structure and Degree of Dependence - A Quantile Regression Approach

Dirk Baur ()

No 170, Working Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: The copula function defines the degree of dependence and the structure of dependence. This paper proposes an alternative framework to decompose the dependence using quantile regression. It is demonstrated that the methodology provides a detailed picture of dependence including asymmetric and non-linear relationships. In addition, changes in the degree or structure of dependence can be modelled and tested for each quantile of the distribution. The empirical part applies the framework to three different sets of financial time-series and demonstrates substantial differences in dependence patterns among asset classes and through time. The analysis of 54 global equity markets shows that detailed information about the structure of dependence is crucial to adequately assess the benefits of diversification in normal times and crisis times.

Keywords: quantile regression; copula; dependence modelling; tail dependence; contagion; financial crises (search for similar items in EconPapers)
JEL-codes: C22 G14 (search for similar items in EconPapers)
Pages: 42
Date: 2012-08-01
New Economics Papers: this item is included in nep-ecm
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Published as: Baur, D. G., 2013, "The Structure and Degree of Dependence - A Quantile Regression Approach", Journal of Banking and Finance, 37(3), 786-798.

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http://www.finance.uts.edu.au/research/wpapers/wp170.pdf (application/pdf)

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Journal Article: The structure and degree of dependence: A quantile regression approach (2013) Downloads
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