WSEAS Transactions on Business and Economics
Print ISSN: 1109-9526, E-ISSN: 2224-2899
Volume 11, 2014
Wavelet - Pair Copula Construction Inference for Financial Contagion
Authors: ,
Abstract: In this paper we propose a Wavelet - Pair Copula Construction approach for contagion identification. The method consists in filtering past marginal dependence, performing multiscale decomposition in marginal residuals, and estimating a Pair Copula Construction for each frequency scale of interest. We carry out these steps with daily data from U.S., German, Brazilian and Hong Kong MSCI indices. The procedure is realized for non-crisis and crisis (sub-prime and Eurozone) periods. We find results that indicate a rising in association for most relationships, representing presence of contagion effect during Sub-prime and Eurozone crises.