Excess kurtosis

Kurtosis measures the "fatness" of the tails of a distribution. Positive excess kurtosis means that distribution has fatter tails than a normal distribution. Fat tails means there is a higher than normal probability of big positive and negative returns realizations. When calculating kurtosis, a result of +3.00 indicates the absence of kurtosis (distribution is mesokurtic). For simplicity in its interpretation, some statisticians adjust this result to zero (i.e. kurtosis minus 3 equals zero), and then any reading other than zero is referred to as excess kurtosis. Negative numbers indicate a platykurtic distribution; positive numbers indicate a leptokurtic distribution.

Excess Kurtosis

A measure of the fatness of the tails of kurtosis where there is higher likelihood of large gains or large losses on an investment. That is, excess kurtosis indicates that the volatility of the investment is itself highly volatile.

Mentioned in

Normal probability distribution

References in periodicals archive

An important fact about this region is that it is not rectangular; the possible excess kurtosis values depend on skewness, and conversely.

Gram-Charlier Processes and Applications to Option Pricing

However, some researchers have pointed out that if the distribution of causal effects exhibits a high degree of non-normality, fat tails, excess kurtosis and skewness (e.g.

Advertising, research and development, and capital market risk: higher risk firms versus lower risk firms

The excess kurtosis, a measure of skew and a heavy tail is about 13 over the whole sample.

Steroids and home runs

Compared to the BS model, the jump diffusion model attributes the skewness and excess kurtosis observed in the implied distribution of the underlying asset returns to the random jumps in the underlying asset returns.

An empirical comparison of option-pricing models in hedging exotic options

Second, the significant statistical property of excess kurtosis provides a cautionary note.

The Great Moderation and the relationship between output growth and its volatility

None of the price series exhibited excess kurtosis. The daily closing stock price indices exhibited strong positive correlation during the sample period.

Are daily stock price indices in the major European equity markets cointegrated? Tests and evidence

The change in the real interest rate exhibits statistically significant excess kurtosis (5.164) and mild but statistically significant skewness (0.401).

Macroeconomic news and real interest rates

For the monthly forecast horizon there is no excess kurtosis, even for the raw data.

Volatility forecasts, trading volume, and the ARCH versus option-implied volatility trade-off