FRM Part I · FRM Exam Part I · Sample Moments
A fund's monthly returns display negative skewness. Which statement is most consistent with this?
With negative skewness the left tail is longer or fatter, because large negative deviations dominate the cubed deviations, and the mean is typically pulled below the median. Skewness is independent of kurtosis, so nothing is implied about tail thickness.
- AThe left tail is longer or fatter, and the mean is typically below the medianCorrect
- BThe right tail is longer, and the mean is typically below the median
- CLarge positive deviations from the mean dominate the third central moment
- DThe distribution must have excess kurtosis below zero
Explanation
Negative skewness means the third standardized moment is negative, because large negative deviations dominate when cubed. The long left tail pulls the mean below the median. Skewness and kurtosis are separate measures, so excess kurtosis is not determined.
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