- Tail risk is the probability of incurring a loss due to a rare event, as predicted by the probability distribution.
- Colloquially, a short-term move of more than three standard deviations is considered to create specific tail risk.
- Although tail risk technically applies to both the left and right tails, people are most concerned about losses (left tail).
- The events of the tail made experts doubt the true probability distribution of returns on investment assets.