The conditional dependence structure of insurance sector credit default swap indices |
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| Affiliation: | 1. Department of Neurobiology, Neurobiology Key Laboratory, Harbin Medical University, Education Department of Heilongjiang Province, Harbin, Heilongjiang 150086, China;2. Department of Neurology, The First Affiliated Hospital of Harbin Medical University, Harbin, Heilongjiang 150001, China;3. Key Laboratories of Education Ministry for Myocardial Ischemia Mechanism and Treatment, Harbin, Heilongjiang 150086, China |
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| Abstract: | This study assesses the dependence structure of insurance sector credit default swap indices, using a copula-GARCH approach. We use daily data of the US, EU, and UK insurance sectors, covering the period from January 2004 to June 2013. We find substantial increases in dependence during the financial crisis periods. Prior to the crises, various copulas are found to best fit each pair; specifically, asymmetric tail dependence is found for the UK–US pair, suggesting the possibility of large simultaneous losses. However, during the crisis periods, the Frank copula fits best, with no significant tail dependence detected, implying low systemic risks. |
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| Keywords: | Insurance sector CDS Copulas Financial crises Systemic risk |
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