Category-based Tail Comovement

Christophe gave a talk at EM Lyon at the end of February at the Journées de Finance Inter-Ecoles de Commerce 2010 (here), about “Category-Based Tail Comovement“. I have uploaded Christophe’s slides here. The abstract of the joint paper (writen also with Emilios Galariotis) is the following, traditional financial theory predicts that comovement in asset returns is due to fundamentals. An alternative view is that of Barberis and Shleifer (2003) and Barberis, Shleifer and Wurgler (2005) who propose a sentiment based theory of comovement, delinking it from fundamentals. In their paper they view comovement under the prism of the standard Pearson’s correlation measure, implicitly excluding extreme market events, such as the latest financial crisis. Poon, Rockinger and Tawn (2004) have shown that under such events di¤erent types of comovement or dependence may co-exist, and make a clear distinction between the four types of dependence: perfect dependent, independent, asymptotically dependent and asymptotically independent. In this paper we extend the sentiment based theory of comovement so as to cover the whole spectrum of dependence, including extreme comovement such as the one that can be observed in …nancial crises. One of the key contributions of this paper is that it formally proves that assets belonging to the same category comove too much in the tail and reclassifying an asset into a new category raises its tail dependence with that category“.

OpenEdition suggests that you cite this post as follows:
Arthur Charpentier (March 5, 2010). Category-based Tail Comovement. Freakonometrics. Retrieved July 18, 2024 from

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