A generalized Pareto or simple Pareto tail-index estimate above 2.0 has frequently been cited as evidence against infinite-variance stable distributions. It is demonstrated that this inference is invalid; tail index estimates greater than 2.0 are to be expected for stable distributions with alpha as low as 1.65. The nonregular distribution of the likelihood ratio statistic for a null of normality and an alternative of symmetric stability is tabulated by Monte Carlo methods and appropriately adjusted for sampling error in repeated tests. Real stock returns yield a stable alpha of 1.845 and reject iid normality at the 0.996 level.
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Volume (Year): 15 (1997) Issue (Month): 1 (January) Pages: 74-81 Download reference. The following formats are available: HTML
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