The use of conditional copula for studying the influence of economic sectors

The complex nature of financial markets is the object of many studies. In general, it is crucial to comprehend how the dependence structure changes based on the values of some covariates because one or more covariates can considerably impact the dependence structure between two variables. Here, we proposed a new method to investigate the dependence between assets in financial markets. The approach combines Kendall’s τ and tail dependence coefficients to account for non-linear relationships and associations between extreme values of the assets. We illustrate the proposed method by analyzing the dependence structure between 44 stocks in the EUROSTOXX50 index, tracking the performance of the 50 largest and most liquid companies in the Eurozone.