Quantile Coherency: A General Measure for Dependence between Cyclical Economic Variables
53 Pages Posted: 24 Oct 2015 Last revised: 30 Dec 2018
Date Written: October 23, 2015
Abstract
In this paper, we introduce quantile coherency to measure general de- pendence structures emerging in the joint distribution in the frequency domain and argue that this type of dependence is natural for economic time series but remains invisible when only the traditional analysis is employed. We define estimators which capture the general dependence structure, provide a detailed analysis of their asymp- totic properties and discuss how to conduct inference for a general class of possibly nonlinear processes. In an empirical illustration we examine the dependence of bivariate stock market returns and shed new light on measurement of tail risk in financial markets. We also provide a modelling exercise to illustrate how applied researchers can benefit from using quantile coherency when assessing time series models.
Keywords: Cross-spectral analysis, Ranks, Copula, Stock market, Risk
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