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Question of the Week - Portfolio Management

AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
edited May 2016 in Level 1 Questions

The early 21st century saw a few significant stresses on the stock market. The markets dipped deeper and more quickly than many were expecting might happen.

 Which of the following statistical metrics most accurately describes this event?

Question of the Week - Portfolio Management 20 votes

High kurtosis
60%
dodoAdaptPrepStuj79thendry7GelinatorhakzisihuiiiMckettkazimeisterJeffavannoordsuls 12 votes
Positive skewness
35%
SarahchrupekaaronpcjbArcoustavAlegriaTM324akshak 7 votes
Low mean
5%
mdlynch3 1 vote

Comments

  • AdaptPrepAdaptPrep Des Moines, IA, USAPosts: 211 Sr Associate
    High kurtosis

    The statistical metrics discussed are:

    • Low mean. Could the average stock return be overstated? Absolutely. But understating the mean affects all returns, not just the outliers.
    • High standard deviation. Again, the standard deviation may play a role. These factors are all related to each other. But the standard deviation applies to all dispersion, not just the tail.
    • Positive skewness. Skewness very well could be playing a part here. The problem with this choice is that an event like a large loss would be indicative of negative skewness.
    • High kurtosis. Kurtosis is the metric used to capture tail risk. If the extreme events are more likely than expected, that means that the kurtosis is higher than expected.
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