Asymmetric Dependence Patterns in Financial Time Series
Journal
European Journal of Finance
ISSN
1351-847X
ISSN-Digital
1466-4364
Type
journal article
Date Issued
2009-05-29
Author(s)
Abstract
This paper proposes a new copula-based approach to test for asymmetries in the dependence structure of ¯nancial time series. Simply splitting observations into subsamples and comparing conditional correlations leads to spurious results due to the well-known conditioning bias. Our suggested framework is able to circumvent these problems. Applying our test to market data, we statistically con¯rm the widespread notion of signicant asymmetric dependence structures between daily changes of the VIX, VXN, VDAXnew, and VSTOXX volatility indices and their corresponding
equity index returns. A maximum likelihood method is used to perform a likelihood ratio test between the ordinary t-copula and its asymmetric extension. To the best of our knowledge, our study is the ¯rst empirical implementation of the skewed t-copula to generate meta skewed student t-distributions. Its asymmetry leads to signi¯cant improvements in the description of the dependence structure between equity returns and implied volatility changes.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1310684
equity index returns. A maximum likelihood method is used to perform a likelihood ratio test between the ordinary t-copula and its asymmetric extension. To the best of our knowledge, our study is the ¯rst empirical implementation of the skewed t-copula to generate meta skewed student t-distributions. Its asymmetry leads to signi¯cant improvements in the description of the dependence structure between equity returns and implied volatility changes.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1310684
Language
English
Keywords
Copulae
Asymmetric Dependence Con-
cepts
cepts
HSG Classification
not classified
Refereed
Yes
Publisher
Routledge
Volume
15
Number
7-8
Start page
703
End page
719
Pages
17
Subject(s)
Eprints ID
50383
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open.access
Name
Ammann_Suess_Asymetric Dependence2009.pdf
Size
1.26 MB
Format
Adobe PDF
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