A New Time-Varying Asymmetric Copula Analysis of the EU Sovereign Debt Crisis

28 Pages Posted: 7 Mar 2019

See all articles by Masahito Kobayashi

Masahito Kobayashi

Yokohama National University - Department of Economics

Date Written: February 21, 2019

Abstract

This paper considers the time-varying asymmetric correlation between the stock and government bond price returns of the five peripheral EU countries during the EU sovereign crisis. To this end this paper proposes a new asymmetric copula using the split-normal distribution. The time-varying correlation coefficients are estimated by the particle filter method in the state-space framework.

It finds a strong asymmetry in the early stage of the crisis, namely positive lower-tail correlation and negative upper-tail correlation of the stock-bond distribution, which the other copulas cannot express. It also finds that the signs of the correlations changed from negative to positive in the crisis.

Keywords: Copula, Particle Filter, Split-Normal Distribution, State Space Model

JEL Classification: C22,C32, G01

Suggested Citation

Kobayashi, Masahito, A New Time-Varying Asymmetric Copula Analysis of the EU Sovereign Debt Crisis (February 21, 2019). Available at SSRN: https://ssrn.com/abstract=3335602 or http://dx.doi.org/10.2139/ssrn.3335602

Masahito Kobayashi (Contact Author)

Yokohama National University - Department of Economics ( email )

Tokiwadai
Hodogaya-ku
Yokohama, Kanagawa-ken 240-8501
Japan
+81-45-339-3544 (Phone)
+81-45-339-3518 (Fax)

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