Chartered Market Technician (CMT) Practice Exam

Kurtosis is a statistical measure that describes the shape of a distribution, particularly in terms of its tails and peak. Specifically, it assesses the extent to which a distribution is peaked or flat relative to a normal distribution. A distribution with high kurtosis indicates a sharper peak (a significant concentration of values around the mean) and heavier tails, while a distribution with low kurtosis indicates a flatter shape with lighter tails.

This measure is important in finance and investing because it can help assess the likelihood of extreme values or outliers in a set of returns, which can have significant implications for risk management. By understanding kurtosis, analysts can better characterize the potential risks associated with investment returns beyond what standard deviation can provide. Hence, when identifying how kurtosis applies to statistical distributions, it directly relates to the description of the distribution's peakedness or flatness.