I think I’ve found that hyperinflation we’ve all been hectored about for the past years

I think I have found the legendary hyperinflation that all the monetary policy cranks have been excreting verbal diarrhoea about for the past few years. There has been, it seems to me, a hyperinflation in the use of “black swan”. Check this out:

Here we analyze a set of 18,520 ultrafast black swan events that we have uncovered in stock-price movements between 2006 and 2011.

From: Financial black swans driven by ultrafast machine ecology

18,520 in 5 years? That’s about 10 a day (or about 14 for every trading day).

I thought the use of ‘black swan’ was pretty well defined by Taleb in his book “The Black Swan”. His definition (I lifted this from Wikipedia):

Based on the author’s criteria:
1. The event is a surprise (to the observer).
2. The event has a major impact.
3. After its first recording, the event is rationalized by hindsight, as if it could have been expected (e.g., the relevant data were available but not accounted for).


So, am I missing something? Has the accepted definition of ‘black swan’ changed? Does it now mean ‘something that happened’? Hey, my shoelace has just come undone … is the great shoelace unraveling of 2012 to go down as a ‘black swan event’ too?

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2 Responses to I think I’ve found that hyperinflation we’ve all been hectored about for the past years

  1. Rob says:

    Just because there are 10 a day, can still mean they are rare: A rare event (i.e. Black Swan event) of a given duration is one which sits in the tail of the distribution of all events having that same duration. Their paper talks about extreme spikes and dips with duration say 100 milliseconds. So the question is, how many other opportunities are there to do this in a day? Well the number of separate 100 millisecond opportunities is large sitting at 10x60x60x9 (in a 9 hour day) which is 324,000. So there are 10 periods out of 324,000 possible ones in a given day, which show extreme behavior. This is a Black Swan in terms of rare but extreme event.

  2. fmtrading says:

    Thanks for the comment Rob, I like your perspective on defining rarity and extreme event. I’m not convinced, though, that being rare is enough to define an event or events as a Black Swan(s). I tend to favour Taleb’s 3 point definition of a Black Swan.

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