Modelling tail dependence between energy market and stock markets in the BRIC countries

Abstract

This article investigates the tail dependence structure between energy market and stock markets returns in the BRIC (Brazil, Russia, India and China) countries over the period from 12 January 2000 to 28 December 2012. Using the regime switching dynamic symmetrized Joe–Clayton (SJC) copula model, we find that the tail dependence increased rather substantially in the financial crisis of 2008/12; moreover, the lower tail dependence for all the paired returns is almost larger than the upper one. Finally, the tail dependence is found to be the strongest for Russia and the weakest for China. The empirical results documented in this study have important implications for portfolio and risk management.