Modeling the dependence dynamics and risk spillovers for g7 stock markets

Abstract

This study investigates the time varying beta risk and spillovers of G7 stock markets. The ICAPM and Markov-switching copula approaches are employed to achieve our study goal. The overall result shows that there is a dependence between individual stock index and aggregated G7 and that beta risk varies depending on the time period. Several copula functions are employed here to find the best fit dependence structure of the data. The results show that Clayton and Gumbel present the appropriate dependence structure in each country and aggregated G7 market. The computed beta risks led to the findings that G7 beta spillovers are substantial and time-varying across the seven countries.