Bubbles and dependence between international equity markets
利用资产价格泡沫信息，构建基于Copula的马尔可夫区制转换模型，研究1995至2019年美国与11个欧洲国家股市的动态相依性，发现泡沫指标显著影响相依结构，并能提升资产配置的夏普比率。
In this study, we develop a copula-based Markov regime-switching model using information contained in asset price bubbles to explore the dynamic dependence between international equity markets. This is motivated by previous evidence that financial crises are often accompanied by the booms and busts of asset price bubbles, thus bubbles contain useful information on systematic risk. Using daily data from 1995 to 2019 for the US and 11 European countries, we show that the bubble indicator constructed from the MSCI index exhibits a significant impact on the dependence structure between international stock markets. Furthermore, the dependence generated by our model leads to a higher Sharpe ratio for a mean-variance utility investor in an asset allocation exercise than that without the bubble index. Thus asset price bubbles are highly relevant to the study of dependence in both statistical and economic terms.