The Impact of Positive Skew

Positive skew is a phenomenon present in populations where large “positive” outliers cause the average to be higher than the median. Net worth is an example of something with a very large positive skew. The top 1% of the net worth distribution holds 45% of the wealth according to a Credit Suisse report. If you were to pick a random American, there is a ~70% chance that you would select someone below the mean of $404,000. This is an example of severe positive skew.

In this whitepaper, we explore the gist of positive skew in the stock market and explain why active managers who measure their performance against a benchmark should dig a little deeper to understand the likelihood of beating the average stock return.

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