CFA Level I · CFA Level I Exam · Statistical Characteristics of Asset Returns
An analyst finds that a fund's monthly returns have an excess kurtosis of 2.5. Compared with a normal distribution, the fund's returns are most likely to exhibit:
The returns are leptokurtic, meaning they show more frequent extreme outcomes and a more peaked center than a normal distribution. Positive excess kurtosis signals fat tails, which raises tail risk. Fewer extremes would require negative excess kurtosis.
- Afewer extreme outcomes and a flatter peak
- Bthe same frequency of extreme outcomes
- Cmore frequent extreme outcomes and a higher peakCorrect
Explanation
Positive excess kurtosis means leptokurtic: fatter tails and a more peaked center than the normal distribution. A platykurtic distribution with negative excess kurtosis would have fewer extremes. Excess kurtosis of zero matches the normal distribution.
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