Dependence of Financial Institutions in China: An Analysis Based on FDG Copula Model

Abstract

© 2020, Springer Nature Switzerland AG. This paper presents a novel methodology for the dependence measurement of financial industry in China. We apply the ARMA-GJR-GARCH model and one-Factor with Durante Generators (FDG) copula to a dataset of stock prices of 42 financial institutions. Considering the impact of financial crisis to the financial market, we conducted our analysis in three periods—pre-crisis, crisis and post-crisis, respectively. The data ranges from September 2003 to May 2020 and the crisis period is from January 2007 to September 2008. Our results tell that dependence coefficients during the crisis period were higher than that in the other two periods. Dependence coefficients between securities companies were the highest in all periods. Moreover, some securities companies were found to be highly correlated with all the other companies in the financial industry.