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Frequent Turbulence? A Dynamic Copula Approch
Year Of Publication: 2006
Month Of Publication: July
Pages: 43
Download Count: 397
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Comment Num: 0
Language: EN
Who Can Read: Free
Date: 6-2-2007
Publisher: Administrator
How common and how persistent are turbulent periods? We address these questionsby developing and applying a dynamic dependence framework. In order to answerthe first question we estimate an unconditional mixture model of normal copulas,based on both economic and econometric justification. In order to answer the secondquestion, we develop and estimate a hidden markov model of copulas, which allowsfor dynamic clustering of correlations. These models permit one to infer the relativeimportance of turbulent and quiescent periods in international markets. Empirically,the three most striking findings are as follows. First, for the unconditional model, turbulentregimes are more common. Second, the conditional copula model dominatesthe unconditional model. Third, turbulent regimes tend to be more persistent.
Chollete, Loran Sign in to follow this author
Heinen, Andreas Sign in to follow this author
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