Falling Tail-risk = New Secular Bull?
As the Dow passed 14K and the view is turning towards the belief that the financial crisis is over, the logical conclusion is that we are seeing the birth of a new secular bull. Indeed, I examined the kurtosis of stock returns and found that it is falling. Tails are getting thinner For non-geeks, kurtosis is [...]
As the Dow passed 14K and the view is turning towards the belief that the financial crisis is over, the logical conclusion is that we are seeing the birth of a new secular bull. Indeed, I examined the kurtosis of stock returns and found that it is falling.
Tails are getting thinner
For non-geeks, kurtosis is the measure of how fat the tails are in a return distribution. There are different kinds of fatness, as shown in the diagram below. Here is one explanation:
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