A0403
Title: Dynamic asymmetric tail dependence among multi-asset classes for portfolio management: Dynamic skew-t copula approach
Authors: Toshinao Yoshiba - Tokyo Metropolitan University (Japan) [presenting]
Kakeru Ito - Nissay Asset Management (Japan)
Abstract: AC dynamic skew-t copula is proposed with cDCC model to capture dynamic asymmetric tail dependence structure among multi-asset classes (government bonds, corporate bonds, equities, and REITs). The empirical analysis shows that the proposed dynamic AC skew-t copula fits data of multi-asset classes better than other dynamic elliptical copulas, including conventional dynamic skew-t copula, in terms of AIC and BIC. Besides, lower tail dependence coefficients have recently increased compared to upper tail dependence coefficients for all pairs. This indicates that the diversification effect through multi-asset investment has decreased, and investors should enhance tail risk management. Furthermore, out-of-sample analysis shows that using dynamic skew-t copula, especially the proposed model, enhances expected shortfall (ES) estimation accuracy and the performance of minimum ES portfolio compared to dynamic t copula and dynamic normal copula. It indicates that capturing dynamic asymmetric tail dependence is crucial for multi-asset investment.
