Time-varying conditional dependence in Nairobi Stock Market
Abstract
This study explores the dependence between the shares traded at the Nairobi stock
Exchange and the prices for which the various companies' shares were selling. Using
simulated time-series of financial asset returns, the results show that market dependence
is not generally conditional on volatility regimes and that a bias in dependence measures
occurs only for particular assumptions about the time-series dynamics. Since real world
data may often not be characterized by homoskedasticity, a correction of estimated
unconditional correlations during market crises may not always be needed.
Consequently, if the return data generating process is invariant but displays conditional
heteroskedasticity, a conditioning bias exists that cannot be distinguished from a
fundamental change in market dependence. While the marginal behaviour of each stock
index is modelled by an asymmetric Student-t distribution, the nature of the dependence
is captured through a copula representation.
The results also confirm the already documented time-varying pattern of the dependence
structure.
Citation
M.Sc (Mathematical Statistics) ThesisSponsorhip
University of NairobiPublisher
School of Mathematics, University of Nairobi
Description
Master of Science