Clustering in Emerging Equity Markets

15 Pages Posted: 16 Oct 2006

See all articles by Beatriz V.M. Mendes

Beatriz V.M. Mendes

Instituto Nacional de Matemática Pura e Aplicada (IMPA)

Ricardo P. C. Leal

The COPPEAD Graduate School of Business

Date Written: October 2006

Abstract

We consider pairwise tail behavior of return series for identifying most important emerging markets clusters. Pairs of markets belonging to the same group present similar type and strength of interdependence during stressful times, represented by a common copula and a statistically equivalent measure of tail dependence. By collapsing data from d markets in a group we overcome the difficult problem of finding their (higher dimensional) d-variate distribution. Results may help portfolio managers to deal out risk due to comovements within clusters. We provide examples on how this can be done. Our study contribute on the discussion about international association among stock markets during turbulent periods, and do not confirm the intuition that the observed association between extremes should be credited to markets drivers.

Keywords: Copulas, Multivariate extreme events, Tail dependence, Emerging markets

JEL Classification: C51, G15, F36

Suggested Citation

Mendes, Beatriz V.M. and Leal, Ricardo Pereira Câmara, Clustering in Emerging Equity Markets (October 2006). Available at SSRN: https://ssrn.com/abstract=937707 or http://dx.doi.org/10.2139/ssrn.937707

Beatriz V.M. Mendes

Instituto Nacional de Matemática Pura e Aplicada (IMPA) ( email )

Estrada Dona Castorina 110
Rio de Janeiro, 22460
Brazil

Ricardo Pereira Câmara Leal (Contact Author)

The COPPEAD Graduate School of Business ( email )

Rua Pascoal Lemme
355 - Cidade Universitária
Rio de Janeiro, Rio de Janeiro 21941-918
Brazil
39389871 (Phone)

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