Modeling Non-Linear Dependence between Risk and Return in Latin Markets

Authors: , ,

Abstract: Financial theory is based on the trade-off between risk and return. However there is not a mathematical formulation of this dependence. Therefore, in this paper we estimate the dependence, through copula families, between risk and return in Latin markets, taking into consideration the U.S. market. For that, we use data from S&P500, Ibovespa, merval and IPC daily prices from January 2009 to December 2010, totaling 483 observations. In order to estimate risk we use a copula-based multivariate GARCH model. To test the copulas´ fit we use an adaptation of the Cramér-von Mises statistics. Results indicate that although linear correlation is not significant, risk and return are dependent on Latin markets. Further, there is a difference in the relationship between the studied markets.

WSEAS Transactions on Business and Economics, ISSN / E-ISSN: 1109-9526 / 2224-2899, Volume 12, 2015, Art. #32

PDF
XML
Cite
×
Citation Tools
WSEAS AMA
Sergio Guilherme Schlender, Marcelo Brutti Righi, Paulo Sergio Ceretta, "Modeling Non-Linear Dependence between Risk and Return in Latin Markets," WSEAS Transactions on Business and Economics, vol. 12, pp. 340-353, 2015, DOI:
Sergio Guilherme Schlender, Marcelo Brutti Righi, Paulo Sergio Ceretta. Modeling Non-Linear Dependence between Risk and Return in Latin Markets. WSEAS Transactions on Business and Economics. 2015;12:340-353.
Copy to Clipboard
Citation copied to Clipboard

Certification

---