Global financial crisis and dependence risk analysis of sector portfolios: a vine copula approach |
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| Authors: | Jose Arreola Hernandez Shawkat Hammoudeh Mazin A M Al Janabi Juan Carlos Reboredo |
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| Institution: | 1. School of Business, Humanities and Social Sciences, Instituto Tecnologico y de Estudios Superiores de Monterrey, Morelia, Mexico;2. LeBow College of Business, Drexel University, Philadelphia, PA, USA;3. Energy and Sustainable Development (ESD), Montpellier Business School, Montpellier, France;4. EGADE Business School, Tecnológico de Monterrey, Mexico City, Mexico;5. Universidade de Santiago de Compostela, Santiago de Compostela, Spain |
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| 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. |
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| Keywords: | Vine copulas risk analysis dependence structure retail and manufacturing stocks |
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