What Is (Fat) Tail Risk?

The Bank of America Merrill Lynch #investors survey indicates that #inflation is currently the biggest tail #risk concern for professional investors. But what do we actually mean by tail risk? As investors we worry about extreme negative events/returns, but embrace extreme positive events/returns. With tail risk, we are technically talking about negative three standard deviation or worse events. In a normal distribution these events happen about 0.13% of the time. In terms of daily returns, these are the extreme negative events that happen about once every three years. Unfortunately, #asset #returns are not normally distributed. They are negatively skewed and exhibit positive excess kurtosis. Negative events occur more often than positive events and both the tails are fat. Fat tail risk still measures extreme negative #events. They just happen to occur more often than a normal distribution would suggest. #financialmarkets #cfainstitute #caia #frm

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[aertybhujm]

simple but informative video
Big thanks from Taiwan

[arustaxx]

Love this explanation. I came across your channel today! Thank you for your consistency and I hope to learn more from you

[anthonylovesmary]

Just read black swan - if I’m not mistaken, seems you have this exactly wrong. Taleb’s point is the fat tail events happen LESS frequently, but their impact is has excessive impact on overall distribution characteristic. What am I missing here?