Testing the stable Paretian assumption
We propose a computationally simple method for testing whether an iid series obeys the summability property characteristic of stable Paretian realizations and discuss some flaws associated with earlier attempts at assessing the appropriateness of the stable Paretian assumption, With sample sizes common to empirical finance applications, the new test exhibits reasonably high power against both Student's t and mixed normal alternatives. An example illustrates the plausibility of stable Paretian innovations in a GARCH model for the S&P 500 index. (C) 2001 Elsevier Science Ltd. All rights reserved.
summability empirical finance garch hill estimator tail index