Canonical Vine Copulas in the Context of Modern Portfolio Management: Are They Worth It?

  title={Canonical Vine Copulas in the Context of Modern Portfolio Management: Are They Worth It?},
  author={Rand Kwong Yew Low and Jamie Alcock and Robert W. Faff and Tim J. Brailsford},
  journal={Econometric Modeling: Capital Markets - Portfolio Theory eJournal},
Portfolio Optimization Based on Forecasting Models Using Vine Copulas: An Empirical Assessment for the Financial Crisis
Overall, this work finds that the Student-t drawable vine copula models perform best with regard to risk reduction, both for the entire period 2005-2012 as well as during the financial crisis.
Score-driven copula models for portfolios of two risky assets
It is found that the DCS model with the Student's t copula is the most parsimonious model, and it is demonstrated that the copula score function discounts extreme observations.
Vine Copulas: Modeling Systemic Risk and Enhancing Higher-Moment Portfolio Optimization
Asymmetric dependence in equities markets have been shown to have detrimental effects on portfolio diversification as assets within the portfolio exhibit greater correlations during market downturns
Multivariate Dependence Risk and Portfolio Selection: An Application to International Stock Portfolio
This study analyses the risk dependence of international stock portfolio based on three risk metrics, namely, the portfolio expected return, CVaR, and the Sharp ratio. The portfolio is optimised
Identifying Dependence Structure among Equities in Indian Markets using Copulas
In this study we have examined that assets returns in Indian markets do not follow an elliptical dependence structure; asymmetric tail dependence can be observed among asset returns particularly when
Search for the optimal branching structure from paired copulas when forming an investment portfolio
The article is devoted to the problem of modeling the stock returns of companies in various industry and country affiliations. The main attention is paid to comparison of two methods of structuring a
Vine Copulas: Modelling Systemic Risk and Enhancing Higher‐Moment Portfolio Optimisation
Asymmetric dependence in equities markets has been shown to have detrimental effects on portfolio diversification as assets within the portfolio exhibit greater correlations during market downturns
Robust Portfolio Selection Using Vine Copulas
The experimental study shows that the robust models based on mixture of R-vine copulas and mixture of C-Vine copulas perform the best in terms of average returns, Sharpe ratio and cumulative returns.
Value at Risk of portfolios using copulas
This paper compares copulas such as elliptical, vine, and hierarchical copulas in computing the VaR of portfolios to appropriate copula functions in various dependence structures among asset return distributions and examines the performance of various copulas for high dimensional data and several dependence structures.
Assessing Market Risk in BRICS and Oil Markets: An Application of Markov Switching and Vine Copula
This paper investigates the dynamic tail dependence risk between BRICS economies and the world energy market, in the context of the COVID-19 financial crisis of 2020, in order to determine optimal


Portfolio Construction Incorporating Asymmetric Dependence Structures: A User's Guide
We outline a method of portfolio selection incorporating asymmetric dependency structures using copula functions. Assuming normally distributed marginal returns, we illustrate how asymmetric return
On the Out-of-Sample Importance of Skewness and Asymmetric Dependence for Asset Allocation
Recent studies in the empirical finance literature have reported evidence of two types of asymmetries in the joint distribution of stock returns. The Þrst is skewness in the distribution of
Optimal Versus Naive Diversification: How Inefficient is the 1/N Portfolio Strategy?
We evaluate the out-of-sample performance of the sample-based mean-variance model, and its extensions designed to reduce estimation error, relative to the naive 1-N portfolio. Of the 14 models we
Dependence Structure and Extreme Comovements in International Equity and Bond Markets with Portfolio Diversification Effects
Equity returns are more dependent in bear markets than in bull markets. Previous studies have argued that a multivariate GARCH model or a regime switching (RS) model based on normal innovations could
Asymmetric Correlations of Equity Portfolios
Correlations between US stocks and the aggregate US market are much greater for downside moves, especially for extreme downside moves, than for upside moves. We develop a new statistic for measuring,
Is the Correlation in International Equity Returns Constant: 1960-90?
The Myth of Diversification
Perhaps the most universally accepted precept of prudent investing is to diversify, yet this precept grossly oversimplifies the challenge of portfolio construction. Correlations, as typically
Optimization of conditional value-at risk
In an intensifying international competition banks are forced to place increased emphasis on enter-prise wide risk-/return management. Financial risks have to be limited and managed from a bank wide