Interdependence between Greece and other European stock markets: A comparison of wavelet and VMD copula, and the portfolio implications

Shahzad, Syed Jawad Hussain, Kumar, Ronald Ravinesh ORCID: 0000-0001-9658-4896, Ali, Sajid and Ameer, Saba (2016) Interdependence between Greece and other European stock markets: A comparison of wavelet and VMD copula, and the portfolio implications. Physica A : Statistical Mechanics and its Applications, 457. pp. 8-33.

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Abstract

The interdependence of Greece and other European stock markets and the subsequent portfolio implications are examined in wavelet and variational mode decomposition domain. In applying the decomposition techniques, we analyze the structural properties of data and distinguish between short and long term dynamics of stock market returns. First, the GARCH-type models are fitted to obtain the standardized residuals. Next, different copula functions are evaluated, and based on the conventional information criteria and time varying parameter, Joe–Clayton copula is chosen to model the tail dependence between the stock markets. The short-run lower tail dependence time paths show a sudden increase in comovement during the global financial crises. The results of the long-run dependence suggest that European stock markets have higher interdependence with Greece stock market. Individual country’s Value at Risk (VaR) separates the countries into two distinct groups. Finally, the two-asset portfolio VaR measures provide potential markets for Greece stock market investment diversification.

Item Type: Article
Uncontrolled Keywords: Wavelets, VMD copula, Portfolio, Contagion and interdependence, European stock markets, Greece
Divisions: Institute of Management > Bolton Business School
Depositing User: Tracey Gill
Date Deposited: 23 May 2016 17:11
Last Modified: 08 Mar 2018 11:56
Identification Number: 10.1016/j.physa.2016.03.048
URI: http://ubir.bolton.ac.uk/id/eprint/872

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