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.

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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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