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Journal of Applied Sciences

Year: 2013 | Volume: 13 | Issue: 11 | Page No.: 1941-1947
DOI: 10.3923/jas.2013.1941.1947
An Empirical Research on Dependence Mode of Style Assets in China Based on Vine Copula Model
GUO Wenwei

Abstract: In this study, we firstly describe the marginal distribution of style assets in Chinese stock market based on AR (1)-GJR (1, 1)-SkT (v, λ) model. These seven style assets in this analysis are including Large-cap Growth, Large-cap Value, Mid-cap Growth, Mid-cap Value, Small-cap Growth, Small-cap Value and Debt. And then, we introduced vine copula functions to analyze the dependence among these style assets. Finally, we make a comprehensive comparison between C vine copula and D vine copula model according to their good fitness in order to select the best vine copula. The result shows that there are structural differences among these styles assets dependence in Chinese stock market. These dependence among style assets show asymmetry and nonlinear character. The traditional method of linear correlation such as person correlation can not analyze this phenomenon. D vine copula model can best describe the dependencies structure among these styles assets. On the whole, the dependence between the same kinds of style assets is larger than that between different kinds of style assets. Among the same kind of style assets, the greater the gap between style assets size, the smaller dependence is. Unconditional dependence is larger than that of the conditional dependence among vine copula model. We give some advice to reduce the risk of style portfolio according to research findings.

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How to cite this article
GUO Wenwei , 2013. An Empirical Research on Dependence Mode of Style Assets in China Based on Vine Copula Model. Journal of Applied Sciences, 13: 1941-1947.

Keywords: Style asset in stock market, dependence structure, D-vine copula, C-vine copula and pair copula

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