Arbeitspapier
A Test for the Portion of Bivariate Dependence in Multivariate Tail Risk
In practice, multivariate dependencies between extreme risks are often only assessed in a pairwise way. We propose a test to detect when tail dependence is truly high-dimensional and bivariate simplifications would produce misleading 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, which is standard in extreme value theory for describing multivariate tail dependence. The asymptotic properties of the test are provided and a bootstrap based finite sample version of the test is suggested. A simulation study documents the good performance of the test for standard sample sizes. In an application to international government bonds, we detect a high tail{risk and low return situation during the last decade which can essentially be attributed to increased higher{order tail risk. We also illustrate the empirical consequences from ignoring higher-dimensional tail risk.
- Language
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Englisch
- Bibliographic citation
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Series: Tinbergen Institute Discussion Paper ; No. 14-024/III
- Classification
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Wirtschaft
Hypothesis Testing: General
Econometric and Statistical Methods: Other
- Subject
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decomposition of tail dependence
multivariate extreme values
stable tail dependence function
subsample bootstrap
tail correlation
- Event
-
Geistige Schöpfung
- (who)
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Bormann, Carsten
Schienle, Melanie
Schaumburg, Julia
- Event
-
Veröffentlichung
- (who)
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Tinbergen Institute
- (where)
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Amsterdam and Rotterdam
- (when)
-
2014
- Handle
- Last update
-
10.03.2025, 11:45 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Bormann, Carsten
- Schienle, Melanie
- Schaumburg, Julia
- Tinbergen Institute
Time of origin
- 2014
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