Can Black Swans be tamed with a flexible Mean-Variance specification?

Abstract

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.

Publication DOI: https://doi.org/10.1002/ijfe.2317
Divisions: College of Business and Social Sciences > Aston Business School > Economics, Finance & Entrepreneurship
College of Business and Social Sciences > Aston Business School > Centre for Personal Financial Wellbeing
College of Business and Social Sciences > Aston Business School
Additional Information: Copyright © 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.
Uncontrolled Keywords: black swans,latent non-linearities,stock returns,structural breaks,Accounting,Finance,Economics and Econometrics
Publication ISSN: 1099-1158
Last Modified: 11 Oct 2024 07:24
Date Deposited: 12 Oct 2020 09:30
Full Text Link:
Related URLs: https://onlinel ... .1002/ijfe.2317 (Publisher URL)
http://www.scop ... tnerID=8YFLogxK (Scopus URL)
PURE Output Type: Article
Published Date: 2022-07
Published Online Date: 2020-10-30
Accepted Date: 2020-06-18
Authors: Chatzikonstanti, Vasiliki
Karoglou, Michail (ORCID Profile 0000-0002-6730-504X)

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