Understanding Skewness and Kurtosis in Stock Returns

Hard Statistical Concepts And Returns Skewness And Kurtosis

Consider a dataset representing the daily returns of a particular stock over a year. The skewness of this dataset is measured to be -1.5, indicating that the distribution of daily returns is skewed to the left. This suggests that there are some significant negative returns affecting the mean. Furthermore, the kurtosis of the returns is 5, which indicates a heavier tail than that of a normal distribution.

Given this information about skewness and kurtosis, which of the following statements is true regarding the distribution of daily returns?

The distribution is likely to experience fewer extreme outcomes compared to a normal distribution.

The distribution is likely to have a higher probability of experiencing extreme negative returns.

The distribution has the same probability of extreme outcomes as a normal distribution.

Hint

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