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Testing the bivariate distribution of daily equity returns using copulas. An application to the Spanish stock market
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Abstract
In this paper we deal with the identification of dependencies between time series of equity returns. Marginal distribution functions are assumed to be known, and a bivariate chi-square test of fit is applied in a fully parametric copula approach. Several families of copulas are fitted and compared with Spanish stock market data. The results show that the t-copula generally outperforms other dependence structures, and highlight the difficulty in adjusting a significant number of bivariate data series.bivariate chi-square statistic, risk management., copulas, daily equity returns