What is a black swan event?

A Black Swan event is a highly improbable, unpredictable and rare occurrence that takes a significant toll on financial markets.

Nassim Nicholas Taleb, author of Black Swan: The Impact of the Highly Improbable, coined the term. He writes:

“First, [a Black Swan event] is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme impact. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable. I stop and summarize the triplet: rarity, extreme impact and retrospective (though not prospective) predictability.”

In his book, he mentions various examples of Black Swan events, such as the rise of Hitler, the demise of the Soviet bloc, the rise of Islamic fundamentalism and the spread of the Internet. Other examples of black swan events include:

  • 1973: OPEC oil embargo
  • 2000: Dot-com bubble burst
  • 2001: September 11th attacks
  • 2008: Global financial crisis
  • 2011: Fukushima nuclear disaster
  • 2020: COVID-19 pandemic

Everything from fads and fashion to epidemics, ideologies and the emergence of art genres can contribute to or even independently be Black Swan events.

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