Modelling Dependence in High Dimensions with Factor Copulas

Dong Hwan Oh, Andrew J. Patton
2015 Social Science Research Network  
This paper presents new models for the dependence structure, or copula, of economic variables, and asymptotic results for new simulation-based estimators of these models. The proposed models are based on a factor structure for the copula and are particularly attractive for high dimensional applications, involving ...fty or more variables. Estimation of this class of models is complicated by the lack of a closed-form likelihood, but estimation via a simulation-based method using rank statistics
more » ... ng rank statistics is simple, and we provide asymptotic results that show the consistency and asymptotic normality of such estimators. We analyze the ...nite-sample behavior of these estimators in an extensive simulation study. We apply the model to a group of 100 daily stock returns and ...nd evidence of statistically signi...cant tail dependence, and that the dependence between these assets is stronger in crashes than booms.
doi:10.2139/ssrn.2670997 fatcat:c6ujajbjpvcuhnz4dkq2nzcnoy