Research On The Correlation Between Financial Assets Based On GARCH-Copula Model

Financial globalization has made the correlation between financial markets increasingly complex.With the deepening of financial globalization and the rapid development of financial markets,the correlation between financial assets has become more complex.The traditional correlation metrics cannot be used to described the complex relationship.The Copula function can describe the asymmetric and nonlinear correlation of financial data.Therefore,this paper uses the Copula function and its theory to study the correlation and related structure between the Shanghai and Shenzhen stock markets.Correlation study can help to analyse the market and make the right choices for both risk managers and investors.It also helps to study portfolios,asset pricing and risk management issues.The specific research content of this paper is as follows:(1)Using Copula function and its theory to study the relevant patterns and related structures of the Shanghai Composite Index and the Shenzhen Component Index.Selecting the daily returns of the Shanghai Composite Index and the Shenzhen Component Index for many years.The GARCH model is used to construct its edge distribution.The SIC criterion is used to determine the model order,and the parameters in the model are estimated by the maximum likelihood estimation method.Then the GARCH-Copula model is constructed by combining the elliptical Copula,and the elliptical Copula model parameters are estimated by the IFM method(two-stage estimation method).The squared Euclidean distance method is applied to select the optimal Copula.The empirical results show that there is a strong correlation between the Shanghai Composite Index and the Shenzhen Component Index.As the stock price rises or falls,the synergy between the Shanghai stock market and the Shenzhen stock market will increase substantially,and the correlation will increase significantly.(2)In the financial market,the variables are often asymmetric and tail-related.The distribution of elliptical Copula has symmetry and tail progressive independence,so there are limitations in the actual financial time series fitting,while the Archimedean Copula function with a thick tail.which can better describe the related structure between variables.Based on the research content 1,the GARCH-Archimedean Copula model is constructed to further analyze the correlation and related structure between the Shanghai and Shenzhen stock markets.To estimate parameters for Copula function,several commonly used parameter estimation methods are compared.Finally,the IFM method is used for estimation.The correlation between the Shanghai and Shenzhen stock markets is analyzed by combining the rank correlation coefficient and the tail correlation coefficient.The optimal Copula is selected by the square Euclidean distance method.The empirical results show that: The GARCH-Gumbel Copula model can more accurately describe the correlation between the two,showing obvious asymmetry at the end of the distribution,and the correlation between the lower tail and the tail is stronger.The correlation between the Shanghai and Shenzhen stock markets is significantly increased.Large,synergistic movement is significantly enhanced.