An event of significant magnitude that takes place or is observed at the end-or tail- of a bell curve- i.e., a normal distribution curve- (hence it is a rare event). It represents a statistical irregularity that falls outside the expected normal distribution. In the financial markets, fat-tail events come in the form of crashes, burst bubbles, panics, and other crises. A short-tail event may appear in the short term or in the long term. If it is observed in the short term, it would typically imply a jump or a series of disruptions in the market, whilst in the long run, a rare event morphs into a trend that reaches levels unimaginable in the past, but quite explainable at the present with the benefit of retrospection. In other words, the short-run rare event is a deviation from short-run volatility and the long-run rare event is a break out of medium-term volatility.
Finance
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