Leptokurtic

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Dictionary Says

Definition of 'Leptokurtic'


A statistical distribution where the points along the X-axis are clustered, resulting in a higher peak (higher kurtosis) than the curvature found in a normal distribution. This high peak and corresponding fat tails means the distribution is more clustered around the mean than in a mesokurtic or platykurtic distribution, and will have a relatively smaller standard deviation. A distribution is leptokurtic when the kurtosis value is a large positive. The prefix "lepto" means "thin," like the shape of its peak.

A distribution is more leptokurtic (peaked) when the kurtosis value is a large positive value.

Investopedia Says

Investopedia explains 'Leptokurtic'




When analyzing historical returns, kurtosis helps gauge an asset's level of risk. A leptokurtic distribution means that small changes happen less frequently because historical values have clustered by the mean. However, this also means that large fluctuations are more likely within the fat tails.

Leptokurtosis can impact how analysts estimate value at risk (VaR). An investor using a normal distribution to estimate VaR will overestimate at low levels of significance, but will overestimate at high levels of significance if the return distribution is leptokurtic. This is the result of the leptokurtic distribution having a fatter tail. The fat tail means risk is coming from outlier events and extreme observations are much more likely to occur. Therefore, conservative investors would probably avoid this type of return distribution.

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