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Beyond dimension two: A test for higher-order tail risk
- Publication Year :
- 2016
- Publisher :
- Karlsruhe, 2016.
-
Abstract
- In practice, multivariate dependencies between extreme risks are often only assessed in a pairwise way. We propose a test for detecting situations when such pairwise measures are inadequate and give incomplete results. This occurs when a significant portion of the multivariate dependence structure in the tails is of higher dimension than two. Our test statistic is based on a decomposition of the stable tail dependence function describing multivariate tail dependence. The asymptotic properties of the test are provided and a bootstrap based finite sample version of the test is proposed. A simulation study documents good size and power properties of the test including settings with time-series components and factor models. In an application to stock indices for non-crisis times, pairwise tail models seem appropriate for global markets while the test finds them not admissible for the tightly interconnected European market. From 2007/08 on, however, higher order dependencies generally increase and require a multivariate tail model in all cases.
Details
- ISSN :
- 21909806
- Database :
- OpenAIRE
- Accession number :
- edsair.doi.dedup.....efc4878fd3a264e705eb50c761392e11
- Full Text :
- https://doi.org/10.5445/ir/1000051814