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Time-varying copula models for financial time series

  • Rüdiger Kiesel (a1), Magda Mroz (a2) and Ulrich Stadtmüller (a2)


We perform an analysis of the potential time inhomogeneity in the dependence between multiple financial time series. To this end, we use the framework of copula theory and tackle the question of whether dependencies in such a case can be assumed constant throughout time or rather have to be modeled in a time-inhomogeneous way. We focus on parametric copula models and suitable inference techniques in the context of a special copula-based multivariate time series model. A recent result due to Chan et al. (2009) is used to derive the joint limiting distribution of local maximum-likelihood estimators on overlapping samples. By restricting the overlap to be fixed, we establish the limiting law of the maximum of the estimator series. Based on the limiting distributions, we develop statistical homogeneity tests, and investigate their local power properties. A Monte Carlo simulation study demonstrates that bootstrapped variance estimates are needed in finite samples. Empirical analyses on real-world financial data finally confirm that time-varying parameters are an exception rather than the rule.


Corresponding author

Chair for Energy Trading and Finance, University of Duisburg-Essen, Campus Essen, Universitätsstraße 12, 45141 Essen, Germany. Email address:
Institut für Zahlentheorie und Wahrscheinlichkeitstheorie, Ulm University, 89069 Ulm, Germany. Email address:
Institut für Zahlentheorie und Wahrscheinlichkeitstheorie, Ulm University, 89069 Ulm, Germany. Email address:


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Time-varying copula models for financial time series

  • Rüdiger Kiesel (a1), Magda Mroz (a2) and Ulrich Stadtmüller (a2)


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