Definition
The term gray swan event refers to an incident of sizable impact, which can be anticipated, but has a relatively low probability of occurring. Often recognized in hindsight, individuals assume the risk of a gray swan event when they invest in financial markets.
Explanation
A gray swan is a metaphor for something that is unexpected to a certain degree, since swans normally are white. The term is derived from the book The Black Swan, the Impact of the Highly Improbable, which was written by Nassim Nicholas Taleb. The difference between these two types of events is subtle:
A gray swan event can be anticipated to a certain degree, and its impact can be reasonably estimated.
A black swan event is a rare event, which is beyond what someone might reasonably expect.
To be labeled as a gray swan event, it must also have sizable impact on a financial market, or individual security.
Related Terms
The term January effect is used to describe a historical trend, whereby the prices of securities rise in the month of January. The January effect is classified as a secondary trend, since it is relatively short in duration.
Moneyzine EditorJanuary 23rd, 2024- The term technical rally is used to describe a sudden increase in a financial market, or an individual security, prompted by factors such as price momentum. A technical rally is considered temporary, since the fundamental factors affecting the security's value have not changed.Moneyzine EditorSeptember 21st, 2023
- The term tortoise rally is used to describe a slow and steady increase in the value of financial markets over time. Tortoise rallies benefit investors that practice a buy and hold strategy.Moneyzine EditorSeptember 21st, 2023
- The term October effect is used to describe a theory that states financial markets typically decline in the month of October. The October effect is believed to be a result of the psychological impact the stock market crashes of 1929 and 1987 have on investors.Moneyzine EditorSeptember 20th, 2023
- The term Santa Claus rally refers to an increase in financial markets during the month of December. The Santa Claus rally is one of several market movements attributed to investor psychology rather than fundamental improvements in the market's outlook.Moneyzine EditorSeptember 21st, 2023
