The aim of this study is to estimate the tail dependence between stock index returns and foreign exchange rate returns for four East Asian economies. We apply the concept of copula to model the dependence structure in the tail area between the two returns series. My major findings are that South Korea and Indonesia have much stronger lower tail dependency than right tail, indicating that the higher probability of double losses than double gains. Taiwan has symmetric tail dependence with similar upper and lower tail coefficients. In the case of the more advanced economy, there exists neither lower nor upper tail dependence.
Fangxia Lin. "Tail Dependence between Stock Index Returns and Foreign Exchange Rate Returns -- a Copula Approach." Proceedings of the New York State Economics Association. vol. 5, October 2012, p. 129-139
BibTeX entry download