ABSTRACT
Kurtosis is a measure of the degree to which portfolio returns appear in the tails of their distribution. A normal distribution has a kurtosis of 3, which follows from the fact that a normal distribution does have some of its mass in its tails. A distribution with a kurtosis greater than 3 has more returns in its tails than the normal, and one with kurtosis less than 3 has fewer returns in its tails than the normal. That matters to investors because more bad returns in the tails means that our portfolio might be at risk of a rare but huge downside event. The terminology is a bit confusing because negative kurtosis actually is less risky because it has fewer returns in the tails.
