“What are the return-distribution characteristics associated with alternative investment strategies that reduce downside risk?” Answer is: Positive Skewness and low kurtosis. Can someone please explain? This question is from Volume 4 CFA Book P.125 Q.26 I did not find anything related to this in Schweser notes…
Kurtosis means outlier events occur more frequently, this is bad. Positive skewness is a good thing (from a long perspective), it means you have a better chance of experiencing greater returns than the mean.
Low kurtosis means the distribution doesn’t have “fat tails” which decreases risk. Positive skewness is representative of a distribution that has outliers on the upside (as opposed to a negatively skwewed distributions where unlikely but large losses are present) which again limits downside risk.