Multivariate Financial Dependence Analysis of Asian Markets Using Vine Copulas

32 Pages Posted: 14 Jun 2014

See all articles by Abhay Kumar Singh

Abhay Kumar Singh

Edith Cowan University

David E. Allen

School of Mathematics and Statistics, The University of Sydney; Financial Research Network (FIRN); Department of Finance; School of Business and Law, Edith Cowan University

Robert J. Powell

Edith Cowan University - School of Accounting, Finance and Economics; Financial Research Network (FIRN)

Krishna Reddy

Australian Institute of Business

Date Written: June 12, 2014

Abstract

Modelling financial dependence is one of the major areas of research in quantitative finance and econometrics. Efficient quantification of dependence is desirable for portfolio theory, hedging, valuation of assets and risk management in general. Quantification of co-movement or multivariate dependence between various international stock markets results in better diversification which benefits investors as it helps in profitable risk distribution. Due to their phenomenal growth in recent years, Asian stock markets have become important for global investors. The study of dependence among Asian stock markets has gained importance as these markets promise diversification benefits. In this paper we study the multivariate dependence structure of eleven Asian financial markets, including Thailand, Malaysia, Indonesia, Singapore, Philippines, Korea, Japan, China, Hong Kong, Taiwan, and India using sophisticated and recently developed model, Regular Vine (R-Vine) Copula. R-Vine Copulas constitute a flexible kind of multivariate dependence models which offer more flexibility than standard multivariate copulas. We also introduce the international markets of Australia, UK and US to the dependence analysis in order to study the influence of these international stock markets on the Asian markets.

Keywords: Financial Dependence, Vine Copula, Asian Financial Crisis, Global Financial Crisis

JEL Classification: C1, C63

Suggested Citation

Singh, Abhay Kumar and Allen, David Edmund and Powell, Robert J. and Reddy, Krishna, Multivariate Financial Dependence Analysis of Asian Markets Using Vine Copulas (June 12, 2014). Available at SSRN: https://ssrn.com/abstract=2449932 or http://dx.doi.org/10.2139/ssrn.2449932

Abhay Kumar Singh (Contact Author)

Edith Cowan University ( email )

Joondalup Drive
Perth
Joondalup, WA 6027
Australia

David Edmund Allen

School of Mathematics and Statistics, The University of Sydney ( email )

School of Mathematics and Statistics F07
University of Sydney
Sydney, New South Wales 2006
Australia

HOME PAGE: http://www.maths.usyd.edu.au

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Department of Finance ( email )

Taiwan
Taiwan

School of Business and Law, Edith Cowan University

100 Joondalup Drive
Joondalup, WA 6027
Australia

HOME PAGE: http://www.dallenwapty.com

Robert J. Powell

Edith Cowan University - School of Accounting, Finance and Economics ( email )

Joondalup Campus
Perth
Joondalup 6027, WA
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Krishna Reddy

Australian Institute of Business ( email )

27 Currie Street
Adelaide, 5000
Australia
0061870891341 (Phone)

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