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

See all articles by Byoung Uk Kang

Byoung Uk Kang

The Hong Kong Polytechnic University - School of Accounting and Finance

Gunky Kim

Monash Business School

Date Written: May 20, 2014

Abstract

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

Kang, Byoung Uk and Kim, Gunky, Asymmetric Dependence, Tail Dependence, and the Time Interval over Which the Variables Are Measured (May 20, 2014). Available at SSRN: https://ssrn.com/abstract=2439074 or http://dx.doi.org/10.2139/ssrn.2439074

Byoung Uk Kang (Contact Author)

The Hong Kong Polytechnic University - School of Accounting and Finance ( email )

School of Accounting and Finance
The Hong Kong Polytechnic University
Hung Hom, Kowloon
Hong Kong
852-2766-7085 (Phone)

HOME PAGE: http://af.polyu.edu.hk/people/academic-staff/dr-byoung-uk-kang/

Gunky Kim

Monash Business School ( email )

Monash University
Caulfield East, Victoria 3145
Australia

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