Application Of Copula Theory In Strock Market Correlation Research

Nowadays,with the rapid development of the financial market,financial inno-vation continues to depth.The relationship between the international and the domestic market is increasing day by day,and the relationship between the mar-ket is becoming more and more complex,and the volatility of financial market is increasing,which makes the financial risk more and more big.The correlation analysis occupies an important position in the modern financial analysis,but in the past the correlation analysis of the financial market is mainly linear,sym-metric,rarely for the nonlinear,non symmetric correlation degree analysis.As a tool of correlation analysis and multivariate statistical analysis,Copula theory provides a general tool for describing the correlation structure between variables.In this paper,we introduced the basic theory,the parameter estimation meth-ods and the test methods of Copula functions.In the meantime,the squared Euclidean distance test was described in detail.In the empirical analysis part,we had the Shanghai Composite Index and Hang Seng Index as an example,by using copula functions to analyze the correlation of them especially the tail cor-relation.The results showed that there was a strong tail dependence between the Shanghai Composite Index and the Hang Seng Index,and the upper tail de-pendence between of them was strong,but the lower tail dependence between of them was not obvious.