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Econometrics 2017, 5(1), 3; doi:10.3390/econometrics5010003

Regime Switching Vine Copula Models for Global Equity and Volatility Indices

1
Faculty Business Administration and International Finance, Nürtingen-Geislingen University, Sigmaringer Strasse 14, 72622 Nürtingen, Germany
2
Center for Quantitative Risk Analysis, Department of Statistics, Ludwig-Maximilians-Universität München, Akademiestr. 1/I, 80799 Munich, Germany
3
Department of Mathematics, Technische Universität München, Boltzmannstraße 3, 85748 Garching, Germany
*
Author to whom correspondence should be addressed.
Academic Editor: Jean-David Fermanian
Received: 30 June 2016 / Revised: 19 December 2016 / Accepted: 20 December 2016 / Published: 4 January 2017
(This article belongs to the Special Issue Recent Developments in Copula Models)
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Abstract

For nearly every major stock market there exist equity and implied volatility indices. These play important roles within finance: be it as a benchmark, a measure of general uncertainty or a way of investing or hedging. It is well known in the academic literature that correlations and higher moments between different indices tend to vary in time. However, to the best of our knowledge, no one has yet considered a global setup including both equity and implied volatility indices of various continents, and allowing for a changing dependence structure. We aim to close this gap by applying Markov-switching R-vine models to investigate the existence of different, global dependence regimes. In particular, we identify times of “normal” and “abnormal” states within a data set consisting of North-American, European and Asian indices. Our results confirm the existence of joint points in a time at which global regime switching between two different R-vine structures takes place. View Full-Text
Keywords: regular vine copulas; Markov switching; implied volatility index; equity index; global dependence regimes regular vine copulas; Markov switching; implied volatility index; equity index; global dependence regimes
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

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Fink, H.; Klimova, Y.; Czado, C.; Stöber, J. Regime Switching Vine Copula Models for Global Equity and Volatility Indices. Econometrics 2017, 5, 3.

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