Dependence and Contagion Between Asset Prices in Poland and Abroad. A Copula Approach

National Bank of Poland Working Paper No. 169

38 Pages Posted: 20 Dec 2013

See all articles by Michał Adam

Michał Adam

National Bank of Poland

Piotr Banbula

National Bank of Poland

Michal Markun

National Bank of Poland; Cardinal Stefan Wyszynski University

Date Written: December 2, 2013

Abstract

We investigate the dependence structure between Polish and foreign financial assets, including stocks, bonds and foreign exchange. Our interest is in the importance of global factors for asset valuation and on the strength of financial contagion. We work in the copula framework, which offers a full description of the dependence structure. Importantly, we assess many copula families and pay special attention to the testing procedure thereof. Polish equities, currency and to some extent long-term sovereign bonds exhibit economically significant tail dependence, while short-term bonds appear relatively unaffected. Symmetric tail behaviour characterises the majority of asset pairs, though we also find significant asymmetries in a number of cases, with assets more likely to post large losses when global conditions significantly deteriorate, rather than to gain when they improve.

Keywords: Copulas, Dependence, Tail dependence coefficients, Contagion, Asset classes

JEL Classification: C58, G15

Suggested Citation

Adam, Michał and Banbula, Piotr and Markun, Michal, Dependence and Contagion Between Asset Prices in Poland and Abroad. A Copula Approach (December 2, 2013). National Bank of Poland Working Paper No. 169, Available at SSRN: https://ssrn.com/abstract=2369256 or http://dx.doi.org/10.2139/ssrn.2369256

Michał Adam (Contact Author)

National Bank of Poland ( email )

00-919 Warsaw
Poland

Piotr Banbula

National Bank of Poland ( email )

00-919 Warsaw
Poland

Michal Markun

National Bank of Poland ( email )

00-919 Warsaw
Poland

Cardinal Stefan Wyszynski University ( email )

01-815 Warsaw
Poland

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