Exploring the Dependence between Mortality and Market Risks
32 Pages Posted: 11 Feb 2016 Last revised: 12 Feb 2016
Date Written: April 1, 2015
In this paper, we develop a statistical approach to explore empirically the dependence between risks in the extremes. We apply it to study the dependence between mortality and market risks. With data for 6 developed countries, extending over 80 years, we pick the worst 10 years of mortality and compare their averages to the whole sample averages. We observe a reduction of the performance of some financial variables and an increase in correlation, but the effect remains weak and difficult to assess statistically. Moreover, our samples do not contain any significant pandemic outbreak, which limits our ability to explore very extreme events. To complement this study, we put in the appendix an econometric study by Philippe Trainar who examines the dynamic consequences of the Spanish Flu on the US market. He concludes that on a one year time horizon, he cannot detect a significant effect. This study shows how we could conduct a wider analysis if we had more data with higher frequency like monthly data.
Keywords: Dependence, Tail Dependence, Mortality Risk, Market Risk, Bootstrap
JEL Classification: C40, C63, C12
Suggested Citation: Suggested Citation