Copula-based analysis of tail dependence between Shanghai and Shenzhen stock market of indexes

In this paper we investigate tail dependence of the log-returns between Shanghai and Shenzhen Stock Exchange (SSSE) indexes. We characterize tail dependence using a bivariate student t copula model and obtain a simple form of Tail Dependence Coefficient (TDC). Base on the representation we simulate the scenes of the above two stock markets and get a simulation result of TDC. Then we give a robust estimation of TDC via non-parameter method and compare it with the simulated result. We find that although the two results prove the existence of the tail dependence consistently, they have some difference on the value of TDC. We analyze the possible reasons behind the difference and propose some suggestions to improve the model.