Black swan swarms: when breaks in stock returns shape the frequency of the highly improbable

Event Date: 4 February 2015

Speaker: Michail Karoglou, Aston University

Abstract:

We examine how breaks in the mean and/or volatility dynamics of stock market returns, that are identified either due to the presence of structural changes or latent non-linearities, can be used to test the homogeneity of the highly improbable returns, what practitioners and the mainstream economic press also call black swan events.

Using the benchmark stock market indices of 27 OECD countries we find that the frequency of black swans varies greatly over the last two decades. An interesting side result is that for many countries black swans are substantially less frequent during the recent financial crises which effectively implies that when stock markets are in turmoil it is less likely to experience highly improbable events.

Published: 11 February 2015