What is the purpose of kurtosis test?

What is the purpose of kurtosis test?

Kurtosis tells you the height and sharpness of the central peak, relative to that of a standard bell curve.

Do investors want high kurtosis?

Investors who are willing and able to take a lot of risk will probably want to invest in a vehicle with a positive excess kurtosis. Excess kurtosis can be at or near zero as well, so the chance of an extreme outcome is rare. This is known as a mesokurtic distribution.

What does negative value of kurtosis mean?

A negative kurtosis means that your distribution is flatter than a normal curve with the same mean and standard deviation. The easiest way to visualise this is to plot a histogram with a fitted normal curve.

What does a kurtosis of less than 3 mean?

If the kurtosis is less than 3, then the dataset has lighter tails than a normal distribution (less in the tails). Careful here. Kurtosis is sometimes reported as “excess kurtosis.” Excess kurtosis is determined by subtracting 3 form the kurtosis. This makes the normal distribution kurtosis equal 0.

Is positive kurtosis good?

If a distribution has positive kurtosis, it is said to be leptokurtic, which means that it has a sharper peak and heavier tails compared to a normal distribution. What is this? This simply means that fewer data values are located near the mean and more data values are located on the tails.

Why is high kurtosis bad?

High kurtosis is most likely to imply a distribution fatter tailed than the normal, so some very high (+ or -) residuals. Even if there are many near zero, that is only the good news, and it is the possible bad news that needs attention.

What is the difference between positive and negative kurtosis?

Definition of Kurtosis Positive kurtosis represents that the distribution is more peaked than the normal distribution, whereas negative kurtosis shows that the distribution is less peaked than the normal distribution. There are three types of distributions: Leptokurtic: Sharply peaked with fat tails, and less variable.

What does a kurtosis of 1 mean?

For kurtosis, the general guideline is that if the number is greater than +1, the distribution is too peaked. Likewise, a kurtosis of less than –1 indicates a distribution that is too flat. Distributions exhibiting skewness and/or kurtosis that exceed these guidelines are considered nonnormal.” (Hair et al., 2017, p.

What if kurtosis is negative?

A negative kurtosis means that your distribution is flatter than a normal curve with the same mean and standard deviation. The easiest way to visualise this is to plot a histogram with a fitted normal curve. A negative kurtosis implies platykurtosis. For the normal distribution the moment measure is equal to 3.

What if kurtosis is more than 3?

If the kurtosis is greater than 3, then the dataset has heavier tails than a normal distribution (more in the tails). If the kurtosis is less than 3, then the dataset has lighter tails than a normal distribution (less in the tails).

Is excess kurtosis good?

Excess kurtosis is a valuable tool in risk management because it shows whether an investment is prone to extreme outcomes. Excess kurtosis can be positive (leptokurtic distribution), negative (platykurtic distribution), and at or near zero (mesokurtic distribution).