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FRM Part I · FRM Exam Part I · Measuring Return, Volatility, and Correlation

Which statement about a return distribution with negative skewness is correct?

With negative skewness the left tail is longer, so large losses are more probable than equally large gains and the mean typically falls below the median. Kurtosis is a separate property and does not determine this relationship.

  1. AThe mean is typically below the median, and large losses are more likely than equally large gainsCorrect
  2. BThe mean is typically above the median, and large gains are more likely than equally large losses
  3. CThe mean equals the median, and tails are symmetric
  4. DThe mean is below the median only if kurtosis is below 3

Explanation

Negative skewness means a longer left tail. The tail of large losses pulls the mean below the median. Large losses are therefore more likely than equally large gains. Skewness and kurtosis are separate measures, so the last option is wrong.

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