New Evidence of Asymmetric Dependence Structures in International Equity Markets
结合马尔可夫转换模型和Copula理论，发现美英股市存在两种依赖状态，其中熊市状态由下尾依赖的非对称Copula刻画，忽视这种不对称性会带来高昂的风险管理成本。
Abstract A number of recent studies finds two asymmetries in dependence structures in international equity markets; specifically, dependence tends to be high in both highly volatile markets and in bear markets. In this paper, a further investigation of asymmetric dependence structures in international equity markets is performed by using the Markov switching model and copula theory. Combining these two theories enables me to model dependence structures with sufficient flexibility. Using this flexible framework, I indeed find that there are two distinct regimes in the U. S.-U. K. market. I also show that for the U. S.-U. K. market the bear regime is better described by an asymmetric copula with lower tail dependence with clear rejection of the Markov switching multivariate normal model. In addition, I show that ignorance of this further asymmetry in bear markets is very costly for risk management. Lastly, I conduct a similar analysis for other G7 countries, where I find other cases in which the use of a Markov switching multivariate normal model would be inappropriate.