Modeling the dependence structures of financial assets through the Copula Quantile-on-Quantile approach |
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| Institution: | 1. Department of Economics, Universidade de Santiago de Compostela, Spain;2. Dipartimento di Statistica, Informatica, Apllicazioni “G. Parenti”, Università di Firenze, Italy;1. Department of Economics, Sungkyunkwan University, Seoul, Republic of Korea;2. Faculty of Economics, University of Cambridge, Cambridge, UK;3. Department of Economics, National University of Singapore, Singapore;4. Department of Economics, Seoul National University, Seoul, Republic of Korea;1. Department of Economics, University of California, San Diego, United States;2. School of Economics, Yonsei University, Seoul, Republic of Korea;3. European Central Bank, DG-Research, Germany;1. Ningbo Lnstitute of Technology, ZheJiang University, Ningbo, 315100, China;2. College of Business Administration, Hunan University, Changsha, 410082, PR China;1. Montpellier Business School, Montpellier, France;2. Department of Finance and Accounting, University of Tunis El Manar, Tunis, Tunisia;3. Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Muscat, Oman;4. Lebow College of Business, Drexel University, Philadelphia, United States;5. Energy and Sustainable Development (ESD), Montpellier Business School, Montpellier, France;6. Foundation University, Islamabad, Pakistan;7. Department of Economics and Finance, College of Economics and Political Science, Sultan Qaboos University, Muscat, Oman |
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| Abstract: | This paper considers a new approach of analyzing asset dependence by estimating how the distributions (in particular, quantiles) of assets are related. Combining the techniques of quantile regression and copula modeling, I propose the Copula Quantile-on-Quantile Regression approach to estimate the correlation that is associated with the quantiles of asset returns, which is able to uncover obscure nonlinear characteristics in asset dependence. The estimation procedure proposed here can also be used for analyzing dependence structures in other settings, such as for studying how macroeconomic covariates are nonlinearly related by looking at the relationship between their quantiles. |
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