Template-type: ReDIF-Paper 1.0
Author-Name: David Allen
Author-Email: d.allen@ecu.edu.au
Author-Person: pal66
Author-Workplace-Name: School of Accounting, Finance and Economics Edith Cowan University, Australia.
Author-Name: Mohammad.A. Ashraf
Author-Email: ashraf@uncp.edu
Author-Person: pas70
Author-Workplace-Name: Indian Institute of Technology, Kharagpur, India
Author-Name: Michael McAleer
Author-Person: pmc90 
Author-Workplace-Name: Econometric Institute, Erasmus School of Economics, Erasmus University Rotterdam and Tinbergen Institute,
	The Netherlands, Department of Quantitative Economics, Complutense University of Madrid, and Institute of
	Economic Research, Kyoto University. 
Author-Name: Robert J. Powell 
Author-Workplace-Name: School of Accounting, Finance and Economics, Edith Cowan University
Author-Name: Abhay K. Singh
Author-Workplace-Name: School of Accounting, Finance and Economics, Edith Cowan University
Title: Financial Dependence Analysis: Applications of Vine Copulae
Abstract: This paper features the application of a novel and recently developed method of statistical and 
	mathematical analysis to the assessment of financial risk: namely Regular Vine copulas. Dependence modeling 
	using copulas is a popular tool in financial applications, but is usually applied to pairs of securities. 
	Vine copulas offer greater flexibility and permit the modelling of complex dependency patterns using the 
	rich variety of bivariate copulas which can be arranged and analysed in a tree structure to facilitate the 
	analysis of multiple dependencies. We apply Regular Vine copula analysis to a sample of stocks comprising 
	the Dow Jones Index to assess their interdependencies and to assess how their correlations change in 
	different economic circumstances using three different sample periods: pre-GFC (Jan 2005- July 2007), GFC 
	(July 2007-Sep 2009), and post-GFC periods (Sep 2009 - Dec 2011). The empirical results suggest that the 
	dependencies change in a complex manner, and there is evidence of greater reliance on the Studentt copula 
	in the copula choice within the tree structures for the GFC period, which is consistent with the existence 
	of larger tails in the distributions of returns for this period. One of the attractions of this approach to 
	risk modelling is the flexibility in the choice of distributions used to model co-dependencies. 
Classification-JEL: G11, C02.
Keywords: Regular Vine Copulas, Tree structures, Co-dependence modelling. 
Length: 41 pages 
Creation-Date: 2013-01 
Number: 2013-05 
X-File-Ref: http://america.sim.ucm.es/repec/ucm/ref/doicae1305.txt
File-URL: https://eprints.ucm.es/id/eprint/17819/1/1305.pdf
File-Format: Application/pdf
Handle: RePEc:ucm:doicae:1305