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NISM Certifications · NISM-Series-XV: Research Analyst · Fundamentals of Research

A research analyst studies the share price of an Indian company over 10 years and finds that its returns are best explained by a few large outlier days rather than a bell-shaped pattern. Which feature of the return distribution does this most directly describe?

Fat tails, or high kurtosis, is correct. When extreme return outcomes occur more often than a normal distribution would predict, the distribution has heavier tails. Skewness measures asymmetry rather than tail thickness, and normality or zero deviation would not generate such frequent outliers.

  1. ANegative skewness only
  2. BFat tails (high kurtosis)Correct
  3. CZero standard deviation
  4. DPerfect normality

Explanation

Frequent extreme outcomes relative to a normal distribution indicate fat tails, that is, excess kurtosis. Perfect normality would not produce outliers of that frequency, and a zero standard deviation would mean no variation. Skewness alone concerns asymmetry, not the extremity of tails.

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