How Long Memory Affects True Dependence Structure? Evidence From the Dow Jones Islamic Sub-indexes

20 Pages Posted: 19 Jan 2018

See all articles by Sana Braiek

Sana Braiek

University of Sousse - Laboratory Research for Economy, Management and Quantitative Finance (LaREMFiQ)

Rihab Bedoui

University of Sousse - Laboratory Research for Economy, Management and Quantitative Finance (LaREMFiQ)

Lotfi BelKacem

University of Sousse - Laboratory Research for Economy, Management and Quantitative Finance (LaREMFiQ)

Date Written: January 12, 2018

Abstract

Long memory is a stylized fact found in most financial return series. In this paper, we seek to examine the impact of the presence of long memory on the dependence structure. First, we fit the multivariate dependence structure using R-vine copulas for pairs of raw and filtered returns. Second, we discuss whether or not changes in the fitted dependence may be driven by long memory. Based on the comparison results, we found that filtered returns of Dow Jones sub-indexes capture higher dependence in the conditional dependence structure. However, they capture lower dependence in bivariate dependence. Thus, the true degree of dependence is masked and such information is crucial for hedging and portfolios management.

Keywords: R-vine Copula, Dow Jones Islamic Sector Indexes, Long Memory, Dependence Structure

JEL Classification: B23, C02, C22, C14

Suggested Citation

Braiek, Sana and Bedoui, Rihab and BelKacem, Lotfi, How Long Memory Affects True Dependence Structure? Evidence From the Dow Jones Islamic Sub-indexes (January 12, 2018). Available at SSRN: https://ssrn.com/abstract=3100890 or http://dx.doi.org/10.2139/ssrn.3100890

Sana Braiek (Contact Author)

University of Sousse - Laboratory Research for Economy, Management and Quantitative Finance (LaREMFiQ) ( email )

Sousse, 4054
Tunisia

Rihab Bedoui

University of Sousse - Laboratory Research for Economy, Management and Quantitative Finance (LaREMFiQ) ( email )

Sousse, 4054
Tunisia

Lotfi BelKacem

University of Sousse - Laboratory Research for Economy, Management and Quantitative Finance (LaREMFiQ) ( email )

Sousse
Tunisia

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