Florian Weigert

An empirical analysis of multivariate copula models

Since the pioneering work of Embrechts and co-authors in 1999, copula models have enjoyed steadily increasing popularity in finance. Whereas copulas are well studied in the bivariate case, the higher-dimensional case still offers several open issues and it is far from clear how to construct copulas which sufficiently capture the characteristics of financial returns. For this reason, elliptical copulas (i.e. Gaussian and Student-t copula) still dominate both empirical and practical applications. On the other hand, several attractive construction schemes have appeared in the recent literature promising flexible but still manageable dependence models. The aim of this work is to empirically investigate whether these models are really capable of outperforming its benchmark, i.e. the Student-t copula and, in addition, to compare the fit of these different copula classes among themselves.

The Impact of Regulatory Stress Testing on Bank's Equity and CDS Performance

This paper investigates the impact of stress testing results on banks equity and CDS performance using a large sample of twelve tests from the US CCAR and the European EBA regimes in the time period from 2010 to 2018. We find that passing banks experience positive abnormal equity returns and tighter CDS spreads, while failing banks show strong drops in equity prices and widening CDS spreads. We also document strong market reactions at the announcement date of the stress tests. Although the institutional designs between US and European stress tests differ, we generally observe similar capital market consequences for both regimes. We complement existing studies by investigating the predictability of stress test outcomes and evaluating strategic options for affected banks and investors.