We examine the homogeneity of the highly improbable returns, what practitioners and the mainstream economic press also call black swan events. By setting up a simple framework and using the benchmark stock market indices of all OECD countries, we find that the frequency of black swans varies greatly over the last two decades often with dramatic changes that can be related to major economic events. Moreover, during the Global Financial Crisis black swans were substantially more frequent for most countries even after controlling for the level of volatility. This implies that, despite the plethora of appropriate financial instruments to counter this effect, during an obvious economic turmoil stock markets are still more likely to experience highly improbable events.
|Journal||International Journal of Finance and Economics|
|Early online date||30 Oct 2020|
|Publication status||E-pub ahead of print - 30 Oct 2020|
Bibliographical note© 2020 The Authors. International Journal of Finance & Economics published by John Wiley & Sons Ltd.
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reproduction in any medium, provided the original work is properly cited.
- black swans
- latent non-linearities
- stock returns
- structural breaks