Conditional Dependency of Financial Series: The Copula-GARCH Model

Eric Jondeau and Michael Rockinger ()

FAME Research Paper Series from International Center for Financial Asset Management and Engineering

Abstract: We develop a new methodology to measure conditional dependency between time series each driven by complicated marginal distributions. We achieve this by using copula functions that link marginal distributions, and by expressing the parameter of the copula as a function of predetermined variables. The marginal model is an autoregressive version of Hansen’s (1994) GARCH-type model with time-varying skewness and kurtosis. Here, we extend, to a dynamic setting, the research that fo-cuses on asymmetries in correlation during extreme events. We show that, for many market indices, dependency increases subsequent to large extreme realizations. Furthermore, for several index pairs, this increase is stronger after crashes. Our model has many potential applications such as VaR measurement and portfolio allocation in non-gaussian environments.

Keywords: International correlation; Stock indices; Skewed Student-t distribution (search for similar items in EconPapers)
JEL-codes: C51 F37 G11 (search for similar items in EconPapers)
Date: 2002-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Downloads: (external link)
http://www.swissfinanceinstitute.ch/rp69.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.swissfinanceinstitute.ch/rp69.pdf [301 Moved Permanently]--> https://www.sfi.ch/rp69.pdf [302 Found]--> https://www.sfi.ch/en/rp69.pdf)

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:fam:rpseri:rp69

Access Statistics for this paper

More papers in FAME Research Paper Series from International Center for Financial Asset Management and Engineering Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().