Warning sign for stock markets: Leptokurtic distribution
We report kurtosis in our Chicago Quantum Net Score analysis for clients on a daily basis. We analyze the daily stock price changes and we compare then to various normal distribution. We look at kurtosis, or the fourth movement of stock prices, and skewness, which is the third movement.
You can think of those statistics as derivatives of stock price changes:
- Mean
- Variance
- Skewness
- Kurtosis
Today, a stock that we reported to be very highly leptokurtic fell around one quarter in value, or around 25%. Over the day, it was still down 21% when we checked. Here is the quote below (source: Yahoo Finance).
This was so interesting that we made a video: Leptokurtic Stocks, Early Warning that came true for one the stock $TGNA of one company Tegna Inc. Here is the video below.
What is a leptokurtic stock? A stock with a leptokurtic stock distribution is one where the probability of the next random sampling (e.g., tomorrow’s price change) being a high standard deviation move or outlier is greater than for a stock with a normal distribution. It is like a bell shape curve that is raised off the x-axis, or has more ‘room in the tails.’
