Tools to Tackle Non-normality?
July 4, 2010 - Big Ideas
A reader commented and asked: “I frequently read that stock prices are not normally distributed, and that by assuming they are, an investor will tend to underestimate market risk. One paper I read says their distribution is leptokurtic, a distribution that has a more acute peak around the mean (that is, a higher probability than a normally distributed variable of values near the mean) and fatter tails (that is, a higher probability than a normally distributed variable of extreme values). My question is, given this fact, is there a practical way for retail investors who are not statisticians and who don’t have access to sophisticated tools, to better estimate risks than using functions that assume a normal distribution?” Keep Reading