Behavioral Black Swan Investment Strategy and Global Stock Market Contagion Dynamics

This paper examines the profitability of the black swan investment strategy via the index portfolio formed and investigates international stock market contagion dynamics through players’ proportion and their interaction in the black swan investment strategy context based on the game theory by using 14 international equity market indices from developed and developing stock markets and, through the application of the different scenarios that play out over various time horizons. The research finding shows that the black swan investment strategy had superior returns in developing countries’ financial markets over the six-month horizon. This investment strategy’s excessive return is accompanied by a higher degree of risk in the same investing time horizon in developed countries’ stock markets. Furthermore, the simultaneous application of the cooperative game theory to the black swan strategy has led to the outperformance of this strategy over the market index strategy performance for most investment periods except one month. In terms of contagion analysis, the economic and pandemic events have different persistence patterns in developing and developed markets. Finally, contagion effects typically appear more frequently in developing stock markets and become maximum in the short term for negative black swan events in developing stock markets.