More than Just Lines on a Map: Best Practices for U.S Bike Routes
FRMt2l9.docx
1. Topic 4
Idiosyncratic risk :
O to -1 risk averse
0 to 1 risk taker
Moments = 4 properties and measures
1st moment = Mean
▪ 2nd moment = Variance
▪ 3rd moment = Skewness
▪ 4th moment = Kurtosis
Skewness : if variance = 1 and sd = 1 and =0 then it is normal distribution
If the distribution of returns of two investments are the same in all aspects,
with the same mean and standard deviation, but different skews, then the
investment with more negative skew is generally considered to be more
risky
=SKEW(returns)
2. Kurtosis:
The distribution with the higher kurtosis will tend to have more extreme
points, and be considered more risky
▪ Leptokurtotic = Positive Excess kurtosis.
▪ Platykurtotic = Negative Excess kurtosis
=kurt(returns)