Application of r-vine copula method in Istanbul stock market data: A case study for the construction sector

Abstract

In the stock market, the relationship between the sectorial changes can be very informative in order to predict the changes in prices of assets from each sector. In order to understand these sectorial relations, various studies have been conducted. In one of the recent studies, the construction sector in Turkey was investigated in terms of its effect in other Turkish sectors since it is one of the leading sectors in Turkey and its assets have a significant impact in stock markets. Hereby, in this study we detect the sectorial relationship of the construction sector via the Regular vine, also known as R-Vine, approach. The R-Vine copula is a specific type of copula which enables us to be flexible in the distributional assumptions of the observations while stating their joint distribution function. By this way, we can investigate the structure of the country’s financial path, i.e., network, under a graphical model.

Keywords

• stock market
• R-vine copula
• connectivily

References

1. Abegaz, F., Wit, E. (2013). Sparse time series chain graphical models for reconstructing genetic networks, Biostatistics, 14(3), 586-599. doi: ttps://doi.org/10.1093/biostatistics/kxt005