Leptokurtic

AAA

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.

BREAKING DOWN '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.

RELATED TERMS
  1. Platykurtic

    A type of statistical distribution where the points along the ...
  2. Stochastic Volatility - SV

    A statistical method in mathematical finance in which volatility ...
  3. Skewness

    Describe asymmetry from the normal distribution in a set of statistical ...
  4. Tail Risk

    A form of portfolio risk that arises when the possibility that ...
  5. Value At Risk - VaR

    A statistical technique used to measure and quantify the level ...
  6. Kurtosis

    A statistical measure used to describe the distribution of observed ...
Related Articles
  1. Options & Futures

    An Introduction To Value at Risk (VAR)

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  2. Markets

    Using Historical Volatility To Gauge Future Risk

    Use these calculations to uncover the risk involved in your investments.
  3. Markets

    The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.
  4. Fundamental Analysis

    Find The Right Fit With Probability Distributions

    Discover a few of the most popular probability distributions and how to calculate them.
  5. Options & Futures

    Volatility's Impact On Market Returns

    Find out how to adjust your portfolio when the market fluctuates to increase your potential return.
  6. Bonds & Fixed Income

    Find The Highest Returns With The Sharpe Ratio

    Learn how to follow the efficient frontier to increase your chances of successful investing.
  7. Forex Education

    Trading With Gaussian Models Of Statistics

    The entire study of statistics originated from Gauss and allowed us to understand markets, prices and probabilities, among other applications.
  8. Active Trading Fundamentals

    How To Convert Value At Risk To Different Time Periods

    Volatility is not the only way to measure risk. Learn about the "new science of risk management".
  9. Active Trading

    Modern Portfolio Theory: Why It's Still Hip

    See why investors today still follow this old set of principles that reduce risk and increase returns through diversification.
  10. Fundamental Analysis

    Exploring The Exponentially Weighted Moving Average

    Learn how to calculate a metric that improves on simple variance.
RELATED FAQS
  1. What assumptions are made when conducting a t-test?

    The common assumptions made when doing a t-test include those regarding the scale of measurement, random sampling, normality ... Read Full Answer >>
  2. What are some of the more common types of regressions investors can use?

    The most common types of regression an investor can use are linear regressions and multiple linear regressions. Regressions ... Read Full Answer >>
  3. What types of assets lower portfolio variance?

    Assets that have a negative correlation with each other reduce portfolio variance. Variance is one measure of the volatility ... Read Full Answer >>
  4. When is it better to use systematic over simple random sampling?

    Under simple random sampling, a sample of items is chosen randomly from a population, and each item has an equal probability ... Read Full Answer >>
  5. What are some common financial sampling methods?

    There are two areas in finance where sampling is very important: hypothesis testing and auditing. The type of sampling methods ... Read Full Answer >>
  6. How can I measure portfolio variance?

    Portfolio variance measures the dispersion of returns of a portfolio. It is calculated using the standard deviation of each ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  2. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  3. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
  4. Bear Market

    A market condition in which the prices of securities are falling, and widespread pessimism causes the negative sentiment ...
  5. Alligator Spread

    An unprofitable spread that occurs as a result of large commissions charged on the transaction, regardless of favorable market ...
  6. Tiger Cub Economies

    The four Southeast Asian economies of Indonesia, Malaysia, the Philippines and Thailand. Tiger cub economy indicates that ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!