Revisiting the Dependence between Financial Markets with Copulas

45 Pages Posted: 26 Nov 2007 Last revised: 3 Apr 2009

See all articles by Arnaud Costinot

Arnaud Costinot

Massachusetts Institute of Technology (MIT) - Department of Economics; University of California, San Diego (UCSD) - Department of Economics

Thierry Roncalli

Amundi Asset Management; University of Evry

Jerome Teiletche

Unigestion

Date Written: October 24, 2000

Abstract

We consider the problem of modelling the dependence between financial markets. In financial economics, the classical tool is the Pearson (or linear correlation) coefficient to compare the dependence structure. We show that this coefficient does not give a precise information on the dependence structure. Instead, we propose a conceptual framework based on copulas. Two applications are proposed. The first one concerns the study of extreme dependence between international equity markets. The second one concerns the analysis of the East Asian crisis.

Keywords: Linear correlation, extreme value theory, quantile regression, concordance order, Deheuvels copula, contagion, Asian crisis

JEL Classification: G00

Suggested Citation

Costinot, Arnaud and Roncalli, Thierry and Teiletche, Jerome, Revisiting the Dependence between Financial Markets with Copulas (October 24, 2000). Available at SSRN: https://ssrn.com/abstract=1032535 or http://dx.doi.org/10.2139/ssrn.1032535

Arnaud Costinot

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

Thierry Roncalli (Contact Author)

Amundi Asset Management ( email )

90 Boulevard Pasteur
Paris, 75015
France

University of Evry ( email )

Boulevard Francois Mitterrand
F-91025 Evry Cedex
France

Jerome Teiletche

Unigestion ( email )

8c, avenue de Champel CP 387
CP 387
Genève 12, CH 1211
Switzerland

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