Skewness
A measure of a distribution's asymmetry. Negative skew means a long tail of losses, with the mean dragged below the median — typical of asset returns, and unwelcome.
Where you will meet it
Skewness appears in 5 learning outcomes on the CFA syllabus. A few of them:
- Explain what skewness and kurtosis say about a return distribution
“Skewness measures asymmetry.”
- Set out how the main asset classes have performed historically in terms of risk and return
“Equity returns show fat tails and negative skewness rather than a normal distribution.”
- Interpret the metrics and charts that a strategy backtest reports
“Because strategy returns are often non-normal, it may also show skewness, excess kurtosis, downside deviation, VaR and conditional VaR, plus rolling performance across periods.”
- Assess what adding a hedge fund strategy to a traditional portfolio does to that portfolio
“Maximum drawdown, skewness and stress-period behaviour matter too: merger arbitrage looks diversifying on average but tends to fall with equities in crises, whereas managed futures and global macro have tended to help most then.”
See also
Practise it
Practise skewness until it is automatic: questions that explain every wrong option.
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