F-Vine Copula: Profiting from Asset Price Heterogeneity to Estimate Systematic Risk

29 Pages Posted: 24 Apr 2017

See all articles by Catherine Kyrtsou

Catherine Kyrtsou

University of Macedonia - Department of Economics; University of Strasbourg - BETA

Anna Nicolaou

University of Macedonia

Manthos Vogiatzoglou

University of Macedonia - Department of Business Administration

Date Written: August 4, 2011

Abstract

In this paper we introduce a new model, based on the synthesis of conditional copulas and Gaussian graphical models under a copula -- vine framework. The use of the copula vine permits each pair between the market and a stock to have their own dynamics. In that case the asset keeps its statistical properties allowing for more realistic estimate of systematic risk. It turns out that this important feature of the model along with the consideration of tail dependent structures can be proved extremely meaningful when asset dynamics are driven by heterogeneous agent trading. Our empirical findings are in line with those of Chiarella et al. (2011) who find that taking the diversity of agents' beliefs into account reduces the market risk.

JEL Classification: copulas, vines, heterogeneity, portfolio, CAPM

Suggested Citation

Kyrtsou, Catherine and Nicolaou, Anna and Vogiatzoglou, Manthos, F-Vine Copula: Profiting from Asset Price Heterogeneity to Estimate Systematic Risk (August 4, 2011). Available at SSRN: https://ssrn.com/abstract=2957050 or http://dx.doi.org/10.2139/ssrn.2957050

Catherine Kyrtsou

University of Macedonia - Department of Economics ( email )

Egnatia str., 156
Thessaloniki 54006
Greece

HOME PAGE: http://www.uom.gr/index.php?newlang=eng&tmima=3&categorymenu=2

University of Strasbourg - BETA

61 avenue de la ForĂȘt Noire
67085 Strasbourg Cedex
France

HOME PAGE: http://cournot2.u-strasbg.fr/users/beta/

Anna Nicolaou

University of Macedonia ( email )

156 Egnatia St.
P.O. 1591
Thessaloniki, 54006
Greece

Manthos Vogiatzoglou (Contact Author)

University of Macedonia - Department of Business Administration ( email )

Thessaloniki
Greece

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