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 to detect when tail dependence is truly high{dimensional and bivariate simpli cations would produce misleading results. This occurs when a signi cant 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 nite 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: SFB 649 Discussion Paper ; No. 2014-042

Classification and Topics

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

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bormann, Carsten ; Schienle, Melanie ; Schaumburg, Julia
• Event: Veröffentlichung
• (who): Humboldt University of Berlin, Collaborative Research Center 649 - Economic Risk
• (where): Berlin
• (when): 2014

Further information

• Handle: http://hdl.handle.net/10419/103804
• Last update: 10.03.2025, 11:43 AM CET