On mathematical modeling and analysis of co-movement and optimal portfolios of stock markets

© 2016 by the Mathematical Association of Thailand. All rights reserved. This paper proposes to use the concept of time-varying copulas in probability theory as an appropriate mathematical modeling tool for investigating an important problem in economics, namely the co-movement of stock markets as w...

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Bibliographic Details
Main Authors: Panisara Phochanachan, Jianxu Liu, Songsak Sriboonchitta
Format: Journal
Published: 2018
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Online Access:https://www.scopus.com/inward/record.uri?partnerID=HzOxMe3b&scp=84985955348&origin=inward
http://cmuir.cmu.ac.th/jspui/handle/6653943832/55945
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Institution: Chiang Mai University
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Summary:© 2016 by the Mathematical Association of Thailand. All rights reserved. This paper proposes to use the concept of time-varying copulas in probability theory as an appropriate mathematical modeling tool for investigating an important problem in economics, namely the co-movement of stock markets as well as optimal portfolio constructions on them. In the sense of expected shortfall, a coherent risk measure widely used in risk management of financial markets, we show that our time-varying copula models for GARCH perform better than the conventional DCC-GARCH model. We exhibit also various advantages of this approach in investment decisions. An application to G7 stock markets is given.