Tail Risk: About 5x Worse Than You May Think

After enduring the (40%) global equity market collapse of 2008, investors large and small are eager to reexamine the perils posed by equity market “tail risk” events. For our analysis into this topic, we examined 50-years of historical S&P 500 Index data and compared the actual tail risk frequency and magnitude to the expectations of a typical investor operating under modern portfolio theory. The difference between the two is surprising, and it suggests that investors have significantly underestimated tail risk frequency and severity.

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