Asymmetric Influence Detection and Forecasting of Global Stock Markets Based on the Copula Theory
Correlation analysis of financial markets is an important starting point for modern financial theory of financial market risks. Along with the deepening of financial globalization, global financial markets have become more and more interdependent. Correlation analysis of global financial markets has become a hot issue for many scholars. On the basis of an in-depth study of Copula theory, this paper applies the theory to the asymmetric correlation analysis of the global major stock market indexes. First, asymmetric correlations among the selected stock indexes are modeled and detected using the relevant metrics of the Copula function on the logarithmic yield of stock indexes; The detected asymmetric correlations are put together to form a directed acyclic graph. Then, artificial neural networks (ANN) are used as a nonlinear model to predict the nearest future of the target stock index; the prediction accuracy is measured in terms of hit rate and mean square error. Test is done on historical daily data with the results showing that the Copula correlation coefficients are more informative for finding the influential leading markets for the predefined target market better than the traditional linear correlation coefficients. The hit rate of the ANN prediction using the detected leading markets found by Copula correlation coefficients is about 3% to 10% higher than that by the linear correlation coefficients.
Cheng, H., & Glascock, J. L. (2005). Dynamic linkages between the greater China economic area stock markets―Mainland China, Hong Kong and Taiwan. Review of Quantitative Finance and Accounting, 24(4), 343-357.
Cheng, K., Lu, F. B., & Yang, X. G. (2012). Spatial analysis of US subprime mortgage crisis contagion. Systems Engineering—Theory & Practice, 32(3), 483-494.
Chong, T. T.-L., Wong, Y.-C., & Yan, I. K.-M. (2008). International linkages of the Japanese stock market. Japan and the World Economy, 20(4), 601-621.
Dong, J., Pan, H. P., Yao, Y. Y., & Li, C. G. (2012). Empirical study on the correlation of oil, stock and gold markets based on DCC-MVGARCH model. Forecasting, 31(4), 53-57. (In Chinese).
Fan, K., Zhao, X. J., & Wang, S. Y. (2010). Empirical study on time-varying information and risk spillover effects among global main equity markets. Journal of Management Science in China, 13(9), 87-97.
Huang, B. N., Yang, C. W., & Hu, J. W. (2000). Causality and cointegration of stock market among the United States, Japan, and the South China growth triangle. International Review of Financial Analysis, 9(3), 281-297.
Huang, F. X., Gu, J., Li, Y. X., & Su, J. Q. (2010). Linkages and dynamic stability of the national of global primary stock index before and after the financial crisis. Systems Engineering—Theory & Practice, 30(10), 1729-1740.
Markwat, T., Kole, E., & Dijk, D. V. (2009). Contagion as domino effect in global stock markets. Journal of Banking and Finance, 33(11), 1996-2012.
Nelsen, R. B. (1999). An introduction to copulas. New York: Springer.
Pan, H. P. (2004). A Swingtum theory of intelligent finance for swing trading and momentum trading. In H. P. Pan, D. Sornette, & K. Kortanek (Eds.), Intelligent Finance―A Convergence of Financial Mathematics with Technical and Fundamental Analysis (pp.475-451). Melbourne: University of Ballarat.
Pan, H. P. (2011). A basic theory of intelligent finance. New Mathematics and Natural Computation, 7(2), 197-227.
Sklar, A. (1959). Fonctions de répartition àn dimensions et leurs marges. Publications de l’Institut de l’ Université de Paris, 8, 229-231.
Xie, Z. H. (2010). MATLAB statistical analysis and application: 40 case analysis. Beijing: Beijing University of Aeronautics and Astronautics Press. (In Chinese).
- There are currently no refbacks.
If you have already registered in Journal A and plan to submit article(s) to Journal B, please click the CATEGORIES, or JOURNALS A-Z on the right side of the "HOME".
We only use three mailboxes as follows to deal with issues about paper acceptance, payment and submission of electronic versions of our journals to databases:
email@example.com; firstname.lastname@example.org; email@example.com
Copyright © 2010 Canadian Research & Development Centre of Sciences and Cultures
Address: 730, 77e AV, Laval, Quebec, H7V 4A8, Canada
Telephone: 1-514-558 6138