Black Swans and Fat Tails
Posted on Thursday, July 14, 2011
By CSRwire Contributing Writer Jayne Flannery
George Gay is fond of analogies. On the eve of the forthcoming SRI in the Rockies event, he explains his choice of a presentation entitled Black Swans and Fat Tails. "Historically people did not believe black swans existed and even when their existence was proven, they were still very rare. What we have learned after witnessing two 40 per cent drops in the US Stock Market over a single ten-year period is that much current thinking on how markets perform is out of date. Statistically, each of these events should occur less often than once in a century and the message must be that extreme events, particularly negative extreme events, are far more common than previously thought and that the risk inherent in the markets is far higher than the statistical premise that a lot of forecasting is based on."...