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Testing Tail-Index Homogeneity via Exceedance-Covariate Independence

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  • Thomas T. Yang

Abstract

We propose a test of whether the tail index of a heavy-tailed outcome is homogeneous across observed covariates. The key observation is that, under tail-index homogeneity, normalized log exceedances are asymptotically independent of the covariates even when tail frequencies vary with them. This leads to a simple-to-implement permutation test based on distance covariance, without estimating conditional tail indices or specifying the form of tail-index heterogeneity. For the global and locally balanced versions, we establish validity for order-statistic thresholds and give conditions for consistency and local power. Local balancing selects extremes within two covariate groups and can improve power when tail selection concentrates the covariates. Simulations illustrate these gains. In French motor insurance data, upper conditional quantiles vary with risk characteristics, but the tail-index tests do not reject a common tail index.

Suggested Citation

  • Thomas T. Yang, 2026. "Testing Tail-Index Homogeneity via Exceedance-Covariate Independence," Papers 2610.21019, arXiv.org.
  • Handle: RePEc:arx:papers:2610.21019
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