On the Rank Condition of Tail Index Regressions and a Comparative Study with Extremal Quantile Regression

Thomas T. Yang

Papers from arXiv.org

Abstract: We revisit tail index regressions. For linear specifications, we find that the usual full rank condition can fail because conditioning on extreme outcomes causes regressors to degenerate to constants. Taking this into account, we provide additional regularity conditions and establish the corresponding asymptotic theory. For more general specifications, the conditional distribution of the covariates in the tails concentrates on the values that minimize the tail index. This issue does not arise in the extremal quantile regression framework, where the tail index is assumed constant. Simulations support these findings. Using daily S\&P 500 returns, we give an empirical illustration. The patterns we find are more consistent with a constant tail index and a time-varying scale than with the strong degeneracy implied by a varying tail index.

Date: 2025-10, Revised 2026-10
New Economics Papers: this item is included in nep-ecm and nep-rmg
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