Black Swan Events or happenings can be best described as unforeseen, rare, and out of control from normal circumstances, which occur beyond expectations and have immense effect that can even reach catastrophic levels.
A black swan event can be broken down to 3 of its most prominent components, such as:
- It has to be an outlier. This means a black swan event’s most prominent feature has to be that it is extraordinary, something that is out of bound and proportions and definitely not lying in the category of normal events.
- It must have a huge impact. This means that any small events or series of events that don’t concern a larger audience or stakeholders cannot be labeled as a black swan event. For a black swan event it must cater to a much larger impact at a much larger scale.
- Most of them occur due to unknown or yet to be explained reasons. This means that every black swan event is unique in its s own right and that no two black swan events can be listed as the same. They are the first and the last of their kind.
Black Swan Events can have great influences on relative fields such as finance, history science and technology. The theory of Black Swan Events was developed by Nassim Nicholas Taleb, a Lebanese-American risk analyst, statistician and scholar.
Some of the most notable black swan events in the history of mankind are as follows:
- Sovereign Default of 400 BC in Syracuse, Greece. Occurred when silver and gold money were confiscated by Dionysius causing the first known devaluation at the expense of general population, resulting in a virulent and ensuing inflation.
- Inflation Crisis of Rome in 301 AD. Devastating price inflation was caused by the overvaluing of silver denarius by Emperor Diocletian which led to social chaos and speculative frenzy.
- South Sea Bubble of 1720. The South Sea Company shares collapsed, and the company went downhill due to investor.
- Panic of 1819 in United States. The first economic boom was only short lived, as the relatively unregulated issuing of paper money took a toll on the Second Bank, leading to financial disaster.
- Wall Street Crash of 1929. Having global effects, it started the Great Depression of 1930s, and is often described as the most overwhelming stock market collapse ever recorded in US history books.
- A black swan in the money market – www.aeaweb.org [PDF]
- Coping with the black swan: The unsettling world of Nassim Taleb – www.tandfonline.com [PDF]
- Black swan or black turkey? The state of economic knowledge and the crash of 2007–2009 – www.tandfonline.com [PDF]
- Dissecting the black swan – www.tandfonline.com [PDF]
- A black swan in the money market – ideas.repec.org [PDF]
- Hedging the black swan: Conditional heteroskedasticity and tail dependence in S&P500 and VIX – www.sciencedirect.com [PDF]
- Pro-market educational governance: is Argentina a black swan? – www.tandfonline.com [PDF]
- “Black Swans” before the “Black Swan” evidence from international LIBOR–OIS spreads – www.sciencedirect.com [PDF]
- The black swan of Cairo: How suppressing volatility makes the world less predictable and more dangerous – www.jstor.org [PDF]
- Black swan events and safe havens: The role of gold in globally integrated emerging markets – www.sciencedirect.com [PDF]