English, Article, Journal or magazine article edition: (IAM Series No 003) Simple Tests for Models of Dependence Between Multiple Financial Time Series, with Applications to U.S. Equity Returns and Exchange Rates Yanqin Fan; Xiaohong Chen; Andrew Patton

User activity

Share to:
 
Bookmark: http://trove.nla.gov.au/version/45207
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • (IAM Series No 003) Simple Tests for Models of Dependence Between Multiple Financial Time Series, with Applications to U.S. Equity Returns and Exchange Rates
Author
  • Yanqin Fan
  • Xiaohong Chen
  • Andrew Patton
Physical Description
  • preprint
Notes
  • Evidence that asset returns are more highly correlated during volatile markets and during market downturns (see Longin and Solnik, 2001, and Ang and Chen, 2002) has lead some researchers to propose alternative models of dependence. In this paper we develop two simple goodness-of-fit tests for such models. We use these tests to determine whether the multivariate Normal or the Student’s t copula models are compatible with U.S. equity return and exchange rate data. Both tests are robust to specifications of marginal distributions, and are based on the multivariate probability integral transform and kernel density estimation. The first test is consistent but requires the estimation of a multivariate density function and is recommended for testing the dependence structure between a small number of assets. The second test may not be consistent against all alternatives but it requires kernel estimation of only a univariate density function, and hence is useful for testing the dependence structure between a large number of assets. We justify our tests for both observable multivariate strictly stationary time series and for standardized innovations of GARCH models. A simulation study demonstrates the efficiency of both tests. When applied to equity return data and exchange rate return data, we find strong evidence against the normal copula, but little evidence against the more flexible Student’s t copula.
  • RePEc:fmg:fmgdps:dp483
Language
  • English
Contributed by
OAIster

Get this edition

Other links

  • Set up My libraries

    How do I set up "My libraries"?

    In order to set up a list of libraries that you have access to, you must first login or sign up. Then set up a personal list of libraries from your profile page by clicking on your user name at the top right of any screen.

  • All (1)
  • Unknown (1)
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.
None of your libraries hold this item.

User activity


e.g. test cricket, Perth (WA), "Parkes, Henry"

Separate different tags with a comma. To include a comma in your tag, surround the tag with double quotes.

Be the first to add a tag for this edition

Be the first to add this to a list

Comments and reviews

What are comments? Add a comment

No user comments or reviews for this version

Add a comment