Essays on tail behavior and extreme dependence patterns in East Asian financial markets.

摘要

This dissertation comprises of three essays organized into three separate chapters on tail behavior and extreme dependence patterns, with each chapter focusing on a specific aspect of the financial markets in several East Asian countries. In chapter one, "Tail Behavior in East Asian Stock Index Returns and Foreign Exchange Rate Movements", I analyze the tail behavior of the daily stock index returns and foreign exchange rate movements of six East Asian economies: Hong Kong, Indonesia, South Korea, Malaysia, Singapore, and Taiwan. I use extreme value theory (EVT), in particular, the generalized Pareto distribution (GPD), to understand the probability of extreme events and estimate the level of fatness in the tails of stock index returns as well as foreign exchange rate returns. Empirically, I find that, whether stock index returns and currency movements of a country have fatter left or right tail is very country specific. And for countries in the same geographical region, the tails of the returns distribution do not behave similarly as often claimed in the literature.;In chapter two, "Tail Dependence between Stock Index Returns and Foreign Exchange Rate Returns: A Copula Approach", I apply the concept of copula to model the dependence patterns, especially in the tail area, between stock index returns and foreign exchange rate returns for five East Asian economies: Hong Kong, Indonesia, South Korea, Singapore, and Taiwan. I first filter the raw returns series using AR(k)-GARCH( p, q) type models to make sure the probability integral transforms are i.i.d Uniform (0,1), and then I fit the resulting series to the copula models. Some major empirical findings are, for the two more advanced markets, namely Hong Kong and Singapore, there exists neither left nor right tail dependence between stock index returns and exchange rate returns for the period under examination. Two of the three emerging markets (Indonesia and South Korea) have much stronger left tail dependency than right tail dependency, indicating that the higher probability of double extreme loss than double extreme gain. Taiwan has symmetric tail dependence with similar right and left tail dependence coefficients.;In chapter three, "Extreme Dependence across East Asian Financial Markets: Evidence in Equity and Currency Markets", I investigate pairwise extreme dependencies across regional financial markets by directly estimating the degree of tail dependence coefficients via unconditional and conditional copulas. I apply the two-step inference from the margins (IFM) method to model the extreme dependence patterns across stock markets as well as across currency markets. Empirically, I find significant asymmetric tail dependence in equity markets, with a larger left tail dependence coefficient than the right tail dependence coefficient. Mixed results are found for extreme co-movements in the foreign exchange markets. Extreme co-movements in the currency markets are much weaker, in several cases, with larger right tail coefficients. Using conditional copula, I also find significant changes in the degree of tail dependence for most of the equity pairs. These results serve as evidence that the degree of tail dependence in these stock markets changes over time, suggesting that these stock markets are in the process of becoming more integrated.;In chapter four, "Summary of Findings", I summarize the empirical findings of this study and discuss the potential implications of these findings.