Dependence between Croatian and European stock markets - a copula GARCH approach

Abstract

The objective of this paper is to analyze dependence structure between the returns of Croatian and five European stock markets (Austrian, French, German, Italian, and the U.K.ʼs). We propose a copula GARCH approach, where the return series are modeled as univariate GARCH processes and the dependence structure between the return series is defined by a copula function. Four different copulas are fitted - a constant and conditional normal and symmetric Joe-Clayton (SJC) copulas - and estimated by a semi-parametric method. We found that the time-varying normal copula yields the best fit for CROBEX-CAC40, CROBEX-DAX, and CROBEX-FTSE-MIB stock indices pairs, while the time-varying SJC copula is the best fit for CROBEX-ATX and CROBEX-FTSE100. Further, we found that the probability of simultaneous extreme positive and negative returns in Croatian and other European stock markets can increase to 0.77 during turbulent times. The lower and upper tail dependence dynamics between Croatian and other European stock markets is similar in pattern, differing only in scale. The basic conclusion of the research is that the dependence between the stock markets of Croatia and five major European stock markets is dynamic and can be properly captured by either a dynamic normal or symmetrized Joe-Clayton copula GARCH models.

Keywords

borze;borzništvo;ekonometrični modeli;Hrvaška;EU;

Data

Language:	English
Year of publishing:	2013
Typology:	1.01 - Original Scientific Article
Organization:	UM EPF - Faculty of Economics and Business
UDC:	336.761(497.5)(4-01)
COBISS:	11615004
ISSN:	1331-8004
Views:	741
Downloads:	107
Average score:	0 (0 votes)
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Other data

Secondary language:	Croatian
Secondary title:	Međusobna ovisnost hrvatskog i pojedinih europskih dioničkih tržišta
Secondary abstract:	Cilj ovog rada je analizirati strukturu međusobne ovisnosti prinosa hrvatskog i pet europskih dioničkih tržišta (austrijskog, francuskog, njemačkog, talijanskog i britanskog). Ishodišna hipoteza jest, da je međusobna ovisnost dinamična i vjerojatno nelinearna i stoga ne može biti korektno ocjenjena primjenom običnih mjera međuzavisnosti, kao što su Pearsonova korelacija i dinamična korelacija. Umjesto toga, u ovom se radu primjenjuje pristup kopula GARCH, s univarijantnim GARCH modeliranjem prinosa pojedinih tržišta, a struktura međusobne ovisnosti modelira se kopula funkcijama. Upotrijebljene su četiri različite kopula funkcije – konstantna i kondicionalna normalna i simetrična Joe-Claytonova (SJC) kopula – koje se ocjenjuju semi-parametričnom metodom. Rezultati studije pokazuju, da najbolju ocjenu međusobne ovisnosti između indeksa CROBEX-CAC40, CROBEX-DAX i CROBEX-FTSEMIB pruža dinamična normalna kopula, a između CROBEX-ATX i CROBEX-FTSE100 dinamična SJC kopula. Jedan od rezultata ove studije ukazuje na to da vjerojatnost simultanog ekstremnog pozitivnog i ekstremno negativnog prinosa na hrvatskom i jednom od drugih istraženih europskih dioničkih tržišta može porasti na 77 % u trenutku ekstremne volatilnosti na dioničkom tržištu.
Secondary keywords:	borze;borzništvo;ekonometrični modeli;Hrvaška;EU;odvisnost;kopula GARCH;
URN:	URN:SI:UM:
Type (COBISS):	Scientific work
Pages:	str. 209-232
Volume:	ǂVol. ǂ31
Issue:	ǂno. ǂ2
Chronology:	2013
ID:	10850293