Beyond dimension two: A test for higher-order tail risk

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: KIT Working Paper Series in Economics ; No. 80

Classification and Topics

• Classification: Wirtschaft ; Econometrics ; Specific Distributions; Specific Statistics ; Financial Econometrics
• Subject: decomposition of multivariate tail dependence ; multivariate extreme values ; stable tail dependence function ; extreme dependence modeling

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bormann, Carsten ; Schaumburg, Julia ; Schienle, Melanie
• Event: Veröffentlichung
• (who): Karlsruher Institut für Technologie (KIT), Institut für Volkswirtschaftslehre (ECON)
• (where): Karlsruhe
• (when): 2016

Further information

• DOI: doi:10.5445/IR/1000051814
• Handle: http://hdl.handle.net/10419/126095
• URN: urn:nbn:de:swb:90-518143
• Last update: 10.03.2025, 11:45 AM CET