A study of the effect of black swan events on stock markets – and developing a model for predicting and responding to them

Abstract

Black Swan events are rare and seemingly random in nature. In the famous paper by Nassim Nicholas Taleb, it is posited that Black Swan events cannot be reliably predicted, and it is instead important to be prepared for them at all times (Musgrave, 2009). This study aims to understand various Black Swan events in recent history from the point of view of equity markets, and performs a comparative study between different events across time and geography in order to understand if there are any standard early indicators. In this study, a total of seven global events have been observed within the selected period from FY 1997 to FY 2019. All events have been considered from the standpoint of their impact on S&P 500 index. Apart from assessing the sensitivity factor, the impact of each event was observed for any statistical similarity through a One-Way ANOVA test of their normalised values.