When assets exhibit asymmetric dependence or joint downside risk, diversificationcan fail and financial markets may be prone to systemic risk. We analyze thedependence structure of risk factors in the US economy, using both correlations anda parsimonious set of copulas. We find evidence of...

A central role for economic policy involves reducing the incidence of systemic downturns,when key economic variables experience joint extreme events. In this paper,we empirically analyze such asymmetric dependence using two approaches, correlationsand copulas. We document four findings. First,...

This paper examines the estimation of the Stochastic Conditional Duration model by the empirical characteristic function and the generalized method of moments when maximum likelihood is unavailable. The joint characteristic function for the durations along with general expressions for the...

A central role for economic policy involves reducing the incidence of systemic downturns, when key economic variables experience joint extreme events. In this paper, we empirically analyze such dependence using two approaches, correlations and copulas. We document four findings. First, linear...

In this paper, we propose the use of static and dynamic copulas to study the leverage effect in the S&P 500 index. Copula models can conveniently separate the leverage effect from the marginal distributions of the return and its volatility. Daily volatility is proxied by a measure of realized...