Relation between higher order comoments and dependence structure of equity portfolio

Cerrato, Mario, Crosby, John, Kim, Minjoo ORCID: 0000-0002-5454-2257 and Zhao, Yang (2017) Relation between higher order comoments and dependence structure of equity portfolio. JOURNAL OF EMPIRICAL FINANCE, 40. pp. 101-120.

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Abstract

We study a relation between higher order comoments and dependence structure of equity portfolio in the US and UK by relying on a simple portfolio approach where equity portfolios are sorted on the higher order comoments. We find that beta and coskewness are positively related with a copula correlation, whereas cokurtosis is negatively related with it. We also find that beta positively associates with an asymmetric tail dependence whilst coskewness negatively associates with it. Furthermore, two extreme equity portfolios sorted on the higher order comoments are closely correlated and their dependence structure is strongly time-varying and nonlinear. Backtesting results of value-at-risk and expected shortfall demonstrate the importance of dynamic modeling of asymmetric tail dependence in the risk management of extreme events.

Item Type:	Article
Uncontrolled Keywords:	Higher order comoments, Dependence structure, Hyperbolic generalized skewed t copula, Generalized autoregressive score, Risk management
Depositing User:	Symplectic Admin
Date Deposited:	29 Oct 2018 12:26
Last Modified:	19 Jan 2023 01:13
DOI:	10.1016/j.jempfin.2016.11.007
Open Access URL:	http://eprints.gla.ac.uk/131712/
Related URLs:	Author Publisher
URI:	https://livrepository.liverpool.ac.uk/id/eprint/3028125