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Medium · Probability & Statistics · Quant Trader interview question · kurtosis, fat-tails, probability, risk-management
What does high kurtosis in a distribution of financial asset returns imply about the likelihood of extreme events (i.e., events far from the mean)? High kurtosis indicates a distribution with 'fatter tails' than a normal distribution. Consider a stock whose daily returns exhibit high kurtosis. What does this suggest about the probability of observing very large positive or negative returns compared to what you would expect from a normal distribution with the same mean and variance?