Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2012-11-21
Number: 12-125/IV/DSF45
Author-Name: Denitsa Stefanova
Author-Workplace-Name: VU University Amsterdam
Title: Stock Market Asymmetries: A Copula Diffusion
Abstract: The paper proposes a model for the dynamics of stock prices that incorporates increased asset co-movements during extreme market downturns in a continuous-time setting. The model is based on the construction of a multivariate diffusion with a pre-specified stationary density with tail dependence. I estimate the model with Markov Chain Monte Carlo using a sequential inference procedure that proves to be well-suited for the problem. The model is able to reproduce stylized features of the dependence structure and the dynamic behaviour of asset returns.
Classification-JEL: C11, C51, C58
Keywords: tail dependence, multivariate diffusion, Markov Chain Monte Carlo
File-Url: https://papers.tinbergen.nl/12125.pdf
File-Format: application/pdf
File-Size: 909208 bytes
Handle: RePEc:tin:wpaper:20120125