Black swans or dragon kings? A simple test for deviations from the power law

TL;DR

This paper introduces a straightforward statistical test to identify deviations from power law distributions, helping classify extreme events like natural disasters and financial crashes as either dragon kings or black swans.

Contribution

It presents a novel, simple test based on empirical distribution function properties to distinguish extraordinary events from typical tail behavior.

Findings

The test effectively differentiates dragon kings from black swans.

Application to real-world data classifies major natural and financial events.

Provides a new tool for risk assessment and understanding extreme events.

Abstract

We develop a simple test for deviations from power law tails, which is based on the asymptotic properties of the empirical distribution function. We use this test to answer the question whether great natural disasters, financial crashes or electricity price spikes should be classified as dragon kings or 'only' as black swans.