Methods to Distinguish Between Polynomial and Exponential Tails

Abstract

Two methods to distinguish between polynomial and exponential tails are introduced. The methods are based on the properties of the residual coefficient of variation for the exponential and non-exponential distributions. A graphical method, called a CV-plot, shows departures from exponentiality in the tails. The plot is applied to the daily log-returns of exchange rates of US dollar and Japanese yen. New statistics are introduced for testing the exponentiality of tails using multiple thresholds. They give better control of the significance level than previous tests. The powers of the new tests are compared with those of some others for various sample sizes. © 2014 Board of the Foundation of the Scandinavian Journal of Statistics..