WSJ: What Is Tail Risk?

By SIMON CONSTABLE

Bank research reports frequently refer to “tail risk” for investors, but it isn’t always clear what it means and what to do about it.

Broadly speaking, a tail risk is an event with a small probability of happening, says Bob Conroy, professor of finance at the University of Virginia Darden School of Business. “In every event there are tails; there are really, really good things that can happen and really, really bad things.”

The term comes from looking at the bell curve, or so-called normal distribution of results. The tails of the bell curve extend out to plus or minus infinity with ever-decreasing probabilities. Read more here.