Asymmetric Dependence, Tail Dependence, and the Time Interval over Which the Variables Are Measured
29 Pages Posted: 20 May 2014 Last revised: 21 May 2014
Date Written: May 20, 2014
The effect of time interval on the linear correlation coefficient between random variables is well documented in the literature. In this paper, we investigate the time interval effect on asymmetric dependence and tail dependence between random variables. We prove that when two random variables are characterized by asymmetric dependence (in any direction), the magnitude of asymmetry in their dependence structure decreases monotonically as the time interval increases, approaching zero (i.e., symmetry) in the limit. Also, when two random variables exhibit tail dependence, their tail dependence decreases monotonically as the time interval increases, approaching zero (i.e., tail independence) in the limit. Our results hold regardless of whether the variables are both additive, both multiplicative, or one is additive and the other is multiplicative.
Keywords: Additive variables, Multiplicative variables, Copulas
JEL Classification: C15, C20, G12
Suggested Citation: Suggested Citation