Explanation:
The fact that mean > median > mode is consistent with a distribution that is positively skewed. For all normal distributions, kurtosis = 3. Excess kurtosis = kurtosis − 3, which is 0 for a normal distribution. In this case, excess kurtosis = 2, which means kurtosis = 5. This means that the distribution being examined has fatter tails than the normal distribution and is said to be leptokurtic.
(Book 2, Module 16.2, LO 16.h)
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Question 16
An analyst is concerned with the symmetry and tails of a distribution of returns over a period of time for a company she is examining. She does some calculations and finds that the median return is 4.2%, the mean return is 4.8%, and the modal return is 3.7%. She also finds that the measure of excess kurtosis is 2. Based on this information, the correct characterization of the distribution of returns over time is:
A
Positive Skewness, Leptokurtic Kurtosis
B
Positive Skewness, Platykurtic Kurtosis
C
Negative Skewness, Platykurtic Kurtosis
D
Negative Skewness, Leptokurtic Kurtosis
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