Mesokurtic

What Is a Mesokurtic Distribution?

Mesokurtic is a statistical term used to depict the exception characteristic of a likelihood distribution wherein extreme events (or data that are rare) is close to zero. A mesokurtic distribution has a comparative extreme value character as a normal distribution.

Kurtosis is a measure of tails, or extreme values, of a likelihood distribution. With greater kurtosis, extreme values (for instance, values that are at least five standard deviations from the mean) once in a while happen.

How Mesokurtic Distributions Work

Distributions might be depicted as mesokurtic, platykurtic, or leptokurtic. Mesokurtic distributions have a kurtosis of zero, meaning that the likelihood of extreme, rare, or exception data is close to zero. Mesokurtic distributions have the equivalent kurtosis as that of the normal distribution, or normal curve, otherwise called a bell curve.

Interestingly, a leptokurtic distribution has fatter tails. This means that the likelihood of extreme events is greater than that implied by the normal curve. Meanwhile, platykurtic distributions, then again, have lighter tails, and the likelihood of extreme events is lesser than that implied by the normal curve. In finance, the likelihood of an extreme event that is negative is called "tail risk."

Risk managers likewise must be worried about likelihood distributions with "long tails." In a distribution with a long tail, the likelihood of an exceptionally extreme event is non-irrelevant.

Kurtosis is an important concept in finance since it influences risk management. Investment returns are assumed to be distributed normally, or at least, to be distributed in a normal, bell-molded curve. In reality, returns fall into a leptokurtic distribution, with "fatter tails" than the normal curve.

This means that the likelihood of large losses or large gains is greater than would be expected assuming returns matched a normal curve. Generally, more risk-averse investors will quite often favor assets and markets with platykurtic distributions, since those assets are less inclined to deliver extreme outcomes.

Features

• With regards to investments, returns ordinarily fall into a leptokurtic distribution, with "fatter tails" than the normal curve.
• Mesokurtic distributions are like normal distributions, in which extreme or anomaly events are impossible.
• Mesokurtic is a statistical term used to depict the exception characteristic of a likelihood distribution that is close to zero.