Statistical Methods in Finance 2024

Tail Index Estimation for Tail Adversarial Stable Time Series with an Application to Russel 3000 Index

By: Sriram Tharuvai (T. N.)
University of Georgia, USA

For stationary time series with regularly varying marginal distributions, an important problem is to estimate the associated tail index which characterizes the power-law behavior of the tail distribution. For this, various results have been developed for independent data and certain types of dependent data. In this talk, we consider the problem of tail index estimation under a recently proposed notion of serial tail dependence called the tail adversarial stability. Using the technique of adversarial innovation coupling and a martingale approximation scheme, we establish the consistency and central limit theorem of the tail index estimator for a general class of tail dependent time series. Based on the asymptotic normal distribution from the obtained central limit theorem, we further consider an application to cluster a large number of regularly varying time series based on their tail indices by using a robust mixture algorithm. The results are illustrated using numerical examples including Monte Carlo simulations and a real data analysis of the daily adjusted closing prices of 1,273 stocks in the Russell 3000 Index.