Excess Kurtosis

Not a bizarre skin condition resulting in uncontrolled growth of calluses in uncomfortable places. Strangely enough though, it is a bit like a disease that a continuous distribution has. A normal Normal curve tends to be very bell-shaped, with identical tapering tails for very high and very low outcomes in the distribution. Kurtosis (not the excess kind) refers to how much data is in the tails.

Normal kurtosis would be a nice, well-behaved Normal curve. Excess kurtosis, then, refers to a distribution with much fatter tails than, uh, normal with more data at very high or very low values that, uh, normal. It’s almost like the high and low ends of the distribution have some swelling. If we plotted the returns on an investment over a bunch of different time periods and produced a distribution with excess kurtosis, we’d expect that investment to be much more likely to produce unusually high or unusually low returns than an investment with a more, uh, normal distribution of returns.