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Dynamic relationship between Stock and Bond returns : A GAS MIDAS copula approach

Nguyen, Hoang and Javed, Farrukh LU (2023) In Journal of Empirical Finance 73. p.272-292
Abstract

Stock and bond are the two most crucial assets for portfolio allocation and risk management. This study proposes generalized autoregressive score mixed frequency data sampling (GAS MIDAS) copula models to analyze the dynamic dependence between stock returns and bond returns. A GAS MIDAS copula decomposes their relationship into a short-term dependence and a long-term dependence. While the long-term dependence is driven by related macro-finance factors using a MIDAS regression, the short-term effect follows a GAS process. Asymmetric dependence at different quantiles is also taken into account. We find that the proposed GAS MIDAS copula models are more effective in optimal portfolio allocation and improve the accuracy in risk management... (More)

Stock and bond are the two most crucial assets for portfolio allocation and risk management. This study proposes generalized autoregressive score mixed frequency data sampling (GAS MIDAS) copula models to analyze the dynamic dependence between stock returns and bond returns. A GAS MIDAS copula decomposes their relationship into a short-term dependence and a long-term dependence. While the long-term dependence is driven by related macro-finance factors using a MIDAS regression, the short-term effect follows a GAS process. Asymmetric dependence at different quantiles is also taken into account. We find that the proposed GAS MIDAS copula models are more effective in optimal portfolio allocation and improve the accuracy in risk management compared to other alternatives.

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author
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organization
publishing date
type
Contribution to journal
publication status
published
subject
keywords
Asymmetry, GAS copulas, MIDAS
in
Journal of Empirical Finance
volume
73
pages
21 pages
publisher
North-Holland
external identifiers
  • scopus:85167835270
ISSN
0927-5398
DOI
10.1016/j.jempfin.2023.07.004
language
English
LU publication?
yes
id
3d358a55-01ec-4069-8e87-ea5cf73468f1
date added to LUP
2023-10-27 16:26:46
date last changed
2023-10-27 16:26:46
@article{3d358a55-01ec-4069-8e87-ea5cf73468f1,
  abstract     = {{<p>Stock and bond are the two most crucial assets for portfolio allocation and risk management. This study proposes generalized autoregressive score mixed frequency data sampling (GAS MIDAS) copula models to analyze the dynamic dependence between stock returns and bond returns. A GAS MIDAS copula decomposes their relationship into a short-term dependence and a long-term dependence. While the long-term dependence is driven by related macro-finance factors using a MIDAS regression, the short-term effect follows a GAS process. Asymmetric dependence at different quantiles is also taken into account. We find that the proposed GAS MIDAS copula models are more effective in optimal portfolio allocation and improve the accuracy in risk management compared to other alternatives.</p>}},
  author       = {{Nguyen, Hoang and Javed, Farrukh}},
  issn         = {{0927-5398}},
  keywords     = {{Asymmetry; GAS copulas; MIDAS}},
  language     = {{eng}},
  pages        = {{272--292}},
  publisher    = {{North-Holland}},
  series       = {{Journal of Empirical Finance}},
  title        = {{Dynamic relationship between Stock and Bond returns : A GAS MIDAS copula approach}},
  url          = {{http://dx.doi.org/10.1016/j.jempfin.2023.07.004}},
  doi          = {{10.1016/j.jempfin.2023.07.004}},
  volume       = {{73}},
  year         = {{2023}},
}