Rank-1/2: A Simple Way to Improve the OLS Estimation of Tail Exponents
Publication information:
Gabaix, Ibragimov. Rank-1/2: A Simple Way to Improve the OLS Estimation of Tail Exponents. Journal of Business Economics and Statistics. 2011;29(1):24–39.
Abstract
To estimate a Pareto exponent with an OLS regression, it's best to specify it with log(Rank-1/2)=a-b log(Size), and use the standard error s.e. (b)=b (2/n)^0.5, as OLS standard errors strongly biased.