Stock Markets in Changing Times: A Study of Select Global Market Indices and Indian Banks

Theoretical Framework

Taleb (2007) came up with the idea of Black Swan Theory to explain events that are sudden and unexpected and whose effects penetrate into the economy and stock markets. The story of Black Swan originated in Australia when people had heard of and seen only white swans and black swans were not known to them. So, they were astonished when a black swan was spotted. This recognition of the Black Swan led to its application by Taleb in his book in 2007, in explaining events that are sudden and unpredictable in nature (Nagwakwe, 2020). This theory is in line with the contagion which emerged in Wuhan, China and has affected the entire world.

The COVID-19 pandemic has bewildered scientists, health care systems and global economies with its sudden outbreak. The distinctive nature of this virus has its adverse effects on every economy, from mortality rates in public healthcare to prices and returns in stock markets (Yarovaya et al., 2020). Restrictions on movement of people and capital goods across borders have disturbed supply chains, consumption patterns, savings and investments. This has led to unpredictable levels of volatility in stock markets across the world. In this way, the Black Swan Theory provides the theoretical background in understanding the impact of this pandemic on stock markets.