Date: 2011-10-28

Time: 15:00-16:00

Location: BURN 1205

Abstract:

This paper considers the estimation of the parameters of a copula via a simulated method of moments type approach. This approach is attractive when the likelihood of the copula model is not known in closed form, or when the researcher has a set of dependence measures or other functionals of the copula, such as pricing errors, that are of particular interest. The proposed approach naturally also nests method of moments and generalized method of moments estimators. Combining existing results on simulation based estimation with recent results from empirical copula process theory, we show the consistency and asymptotic normality of the proposed estimator, and obtain a simple test of over-identifying restrictions as a goodness-of-fit test. The results apply to both iid and time series data. We analyze the finite-sample behavior of these estimators in an extensive simulation study. We apply the model to a group of seven financial stock returns and find evidence of statistically significant tail dependence, and that the dependence between these assets is stronger in crashes than booms.

Speaker

Andrew Patton is an Associate Professor of Economics at Duke University, Durham, North Carolina.