high kurtosis= high risk of extreme outcomes?

CFA Level II
#1

Hi there,

One thing concerns me most recently is that whether a high kurtosis means a high risk of extreme outcomes or the opposite as there are two opposite explanations available from the open sources. And if you see the two types of bell shape from the pics below I believe you will be as confused as I am.

Thanks in advance!

tom

#2

Those are pretty rotten pictures, to be sure.

I wrote an article on kurtosis that may be of some help here: http://financialexamhelp123.com/kurtosis/

The short answer is, yes: leptokurtic distributions have more area in the extreme tails than mesokurtic distributions have.

#3

Thanks!

Your explanation is way clearer than most others.

#4

You’re quite welcome.