The Simple Econometrics of Tail Dependence

van Oordt, Maarten R.C.; Zhou, Chen

doi:10.2139/ssrn.1951840

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The Simple Econometrics of Tail Dependence

De Nederlandsche Bank Working Paper No. 296

19 Pages Posted: 31 Oct 2011

See all articles by Maarten R.C. van Oordt

Maarten R.C. van Oordt

VU University Amsterdam; Tinbergen Institute

Chen Zhou

De Nederlandsche Bank; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: May 1, 2011

Abstract

The aim of this paper is to show that measures on tail dependence can be estimated in a convenient way by regression analysis. This yields the same estimates as the non-parametric method within the multivariate Extreme Value Theory framework. The advantage of the regression approach is contained by its straightforward extension to the estimation of higher dimensional tail dependence. We provide an example on international stock markets. The regression approach to tail dependence can be applied to estimate several measures of systemic importance of financial institutions in the literature.

Keywords: Tail dependence, Regression analysis, Extreme Value Theory, Systemic risk

JEL Classification: C14, C58

Suggested Citation: Suggested Citation

van Oordt, Maarten R.C. and Zhou, Chen, The Simple Econometrics of Tail Dependence (May 1, 2011). De Nederlandsche Bank Working Paper No. 296, Available at SSRN: https://ssrn.com/abstract=1951840 or http://dx.doi.org/10.2139/ssrn.1951840