Skewness as a Factor

Analysing Punchy Stocks

INTRODUCTION

Many investors started their investment career at an early age, typically buying a stock that showed an enticing performance chart, was featured somewhere or recommended by a family member. Moving to a professional investment career often required a change in mentality by progressing from returns to risk-adjusted returns. Investors can continue this education by adding skewness and kurtosis as further layers of analysing potential investments; however, this often becomes challenging as these are somewhat more abstract concepts. Both provide insights into the distribution of returns, which unlike often assumed in financial theory, are not normally distributed.