Reviewed by Aug 27, 2020| Updated on
The word "platykurtic" refers to a statistical distribution where the value of excess kurtosis is negative. A platykurtic distribution would, therefore, have thinner tails than a normal distribution, leading to less extreme positive or negative events.
A leptokurtic distribution is the opposite of a platykurtic distribution. It has an excess kurtosis that is positive.
While choosing where to invest, investors will consider which statistical distributions are correlated with the various types of investments. More risk-averse investors may prefer platykurtic-distributed assets and markets because those assets are less likely to yield severe results.
Understanding a Platykurtic Distribution
Three specific forms of statistical distribution exist—leptokurtic, mesokurtic, and platykurtic. Such distributions differ based on how much excess kurtosis they have, which is related to the likelihood of extreme positive or negative events.
The standard distribution, which is a type of mesokurtic distribution, has three kurtoses. Therefore, kurtosis distributions greater than three are said to have "positive excess kurtosis," while those with less than three kurtoses are said to have "negative excess kurtosis."
Though mesokurtic distributions have a kurtosis of three, the positive and negative excess kurtosis in it are of the leptokurtic and platykurtic distributions respectively. Hence, leptokurtic distributions have a fairly high likelihood of extreme events, while the reverse is true for platykurtic distributions.
What Else You Need to Know About Platykurtic Distribution
Most investors assume that a leptokurtic distribution more closely approaches stock market returns than a platykurtic one. That is, while most returns are likely to be close to the market as a whole's average return, yields often deviate widely from the mean. Such dramatic and unpredictable incidents, also called "black swans," are less likely to occur in platykurtic markets.
This is the reason most of the cautious investors may, therefore, avoid investing in leptokurtic markets and concentrate on investments that deliver platykurtic returns. On the other hand, some investors are actively seeking leptokurtic return investments, assuming that their extreme positive returns would more than balance their extreme negative returns.