Vine copulas: modelling systemic risk and enhancing higher-moment portfolio optimisation

Rand Kwong Yew Low*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

7 Citations (Scopus)

Abstract

Asymmetric dependence in equities markets has been shown to have detrimental effects on portfolio diversification as assets within the portfolio exhibit greater correlations during market downturns compared to market upturns. By applying the Clayton canonical vine copula (CVC) to model asymmetric dependence, we produce a measure of systemic risk across a portfolio of assets. In addition, we use the Clayton CVC to produce estimates of expected returns in an application to higher-moment portfolio optimisation and find evidence of an improvement in performance across a range of risk-adjusted return measures and the indices of acceptability.

Original languageEnglish
Pages (from-to)423-463
Number of pages41
JournalAccounting and Finance
Volume58
Issue numberS1
Early online date11 May 2017
DOIs
Publication statusPublished - Nov 2018
Externally publishedYes

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