Two-Sample Testing for Tail Copulas with an Application to Equity Indices

S.U. Can, John Einmahl, Roger Laeven

Research output: Working paperDiscussion paperOther research output

48 Downloads (Pure)

Abstract

A novel, general two-sample hypothesis testing procedure is established for testing the equality of tail copulas associated with bivariate data. More precisely, using an ingenious transformation of a natural two-sample tail copula process, a test process is constructed, which is shown to converge in distribution to a standard Wiener process. Hence, from this test process a myriad of asymptotically distribution-free two-sample tests can be obtained. The good finite-sample behavior of our procedure is demonstrated through Monte Carlo simulations. Using the new testing procedure, no evidence of a difference in the respective tail copulas is found for pairs of negative daily log-returns of equity indices during and after the global financial crisis.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER, Center for Economic Research
Number of pages37
Volume2021-017
Publication statusPublished - 2021

Publication series

NameCentER Discussion Paper
Volume2021-017

Keywords

  • Tail dependence
  • Tail copula
  • two-sample testing
  • financial crisis
  • distribution-free testing
  • martingale transformation

Fingerprint

Dive into the research topics of 'Two-Sample Testing for Tail Copulas with an Application to Equity Indices'. Together they form a unique fingerprint.

Cite this