Assessing dependence between financial market indexes using conditional time-varying copulas: applications to Value at Risk (VaR) |
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| Authors: | Osvaldo C. Silva Filho Flavio A. Ziegelmann Michael J. Dueker |
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| Affiliation: | 1. Graduate Program of Economics, Catholic University of Brasilia, SGAN 916, Module B W5, Room A 117, Asa Norte 70790-160, Brasilia, DF, Brazil.osvaldoc@ucb.br;3. Graduate Program of Economics (PPGE), Graduate Program of Administration (PPGA) and Department of Statistics, Federal University of Rio Grande do Sul, Av. Bento Gonalves 9500, Prdio 43-111, Agronomia 91509-900, Porto Alegre, RS, Brazil.;4. Russell Investments, 909 A Street, Tacoma, WA, 98402, USA. |
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| Abstract: | We analyse the dynamic dependence structure between broad stock market indexes from the United States (S&P500), Britain (FTSE100), Brazil (BOVESPA) and Mexico (PCMX). We employ Patton’s [Int. Econ. Rev., 2006, 2, 527–556] conditional copula setting and additionally observe the impact of different copula functions on Value at Risk (VaR) estimation. We conclude that the dependence between BOVESPA and the other indexes has intensified since the beginning of 2007. In our case the particular copula form is not crucial for VaR estimation. A goodness-of-fit test based on the parametric bootstrap is also applied. The best fits are obtained via time constant Student-t and time-varying Normal copulas. |
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| Keywords: | Asymmetric dependence Time-varying copulas Value at Risk (VaR) Skewed-t GARCH Bootstrap test |
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