Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/71255
Authors: 
Fortin, Ines
Kuzmics, Christoph
Year of Publication: 
2002
Series/Report no.: 
Reihe Ökonomie / Economics Series, Institut für Höhere Studien (IHS) 126
Abstract: 
The empirical joint distribution of return-pairs on stock indices displays high tail-dependence in the lower tail and low tail-dependence in the upper tail. The presence of tail-dependence is not compatible with the assumption of (conditional) joint normality. The presence of asymmetric-tail dependence is not compatible with the assumption of a joint student -t distribution. A general test for one dependence structure versus another via the profilelikelihood is described and employed in a bivariate GARCH model, where the joint distribution of the disturbances is split into its marginals and its copula. The copula used is such that it allows for the presence of lower tail-dependence and for asymmetric taildependence, and that it encompasses the normal or t-copula. The model is estimated using bivariate data on a set of European stock indices. We find that the assumption of normal or student-t dependence is easily rejected in favour of an asymmetrically tail-dependent distribution.
Subjects: 
value-at-risk
copula
non-normal bivariate GARCH
asymmetric dependence
profile likelihood-ratio test
JEL: 
C12
C32
C52
C51
G15
Document Type: 
Working Paper

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