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Fat-tail and asymmetric correlation are well-known phenomena in many financial variables. This paper analyzes the asymmetric dependence structure between VKOSPI and the spread of Korean sovereign CDS which are two major indicator variables for Korean stock and bond market. As empirical measures for asymmetric dependence, quantile dependence coefficients, copula and cross-quantilogram are estimated. Quantile dependence coefficients show that the VKOSPI and the spread of sovereign CDS are positively and highly correlated at high quantiles while the correlation is very weak at low quantiles. Among the copula functions, Gumbel copula is the best fit for the two variables. Since Gumbel copula exhibits greater dependence in high quantiles than in low ones, it is consistent with the results of quantile dependence. Cross-quantilogram shows that at low quantiles the cross-correlation across time is low but very persistent while it is very high but dies out quickly at high quantiles. Information about the exact shape of the asymmetric dependence between the two major indicators of Korean financial market is useful for asset allocation and risk management.
