From Theory To Practice

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Kurtosis Revisited

From Theory To Practice

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From our very first From Theory to Practice piece, we learned that the positive kurtosis that exists in the market place suggests that extreme, outlier moves will occur more frequently than the normal distribution would predict. This, coupled with negative skew, offers some quantitative support for trading the market from the short side. In today’s segment, we learn that positive kurtosis also causes a clustering effect of the observations, which is yet another reason for selling premium.

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