A1304
Title: Structural changes, copula asymmetry, and tail dependence in Japan's equity and FX markets
Authors: Tsung-Chih Lai - National Chung Hsing University (Taiwan) [presenting]
Yi-Chi Chen - National Cheng Kung University (Taiwan)
Abstract: Time-varying dependence between Japan's equity and foreign exchange markets is examined using a nonparametric copula framework that accommodates asymmetry and tail comovement. Using daily returns over the past five decades, annual empirical copulas are estimated and randomization-based tests for copula symmetry and equality across adjacent years are applied. Three main findings are documented: (i) stock-currency dependence exhibits discrete regime shifts over time; (ii) extreme equity declines are strongly associated with yen appreciations, indicating pronounced downside tail dependence consistent with the yen's safe-haven role; and (iii) violations of exchangeability and radial symmetry imply that correlation-based hedge ratios may substantially mismeasure risk during stress episodes. Conditioning on macrofinancial variables reveals systematic variation in dependence across monetary and risk regimes, underscoring the importance of tail dependence for hedging and asset allocation involving Japanese assets.
