A New Regression-Based Tail Index Estimator

João Nicolau and Paulo Rodrigues
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João Nicolau: ISEG-Universidade de Lisboa and REM/CEMAPRE

The Review of Economics and Statistics, 2019, vol. 101, issue 4, 667-680

Abstract: A new regression-based approach for the estimation of the tail index of heavy-tailed distributions with several important properties is introduced. First, it provides a bias reduction when compared to available regression-based methods; second, it is resilient to the choice of the tail length used for the estimation of the tail index; third, when the effect of the slowly varying function at infinity of the Pareto distribution vanishes slowly, it continues to perform satisfactorily; and fourth, it performs well under dependence of unknown form. An approach to compute the asymptotic variance under time dependence and conditional heteroskcedasticity is also provided.

Date: 2019
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