Question

A.)what happens when the skewness and kurtosis increase or decrease when investing in real estate ( explain why)

B.) what decisions do real estsate investors make based on skewness and kurtosis?

C.) What will cause the skewness/kurtosis to change when relating it to real estate investments?

explain each in detail and write neat or type response please , thanks!

Answer 1

I have provided as much details as possible.In case of further queries use the comments box.

Part-A:

In real estate Skewness is a measure of how the stock is performing over the past few years.

When Skewness increases in real estate it means that the stock has frequent small losses and a few large gains.

However when Skewness decreases in real estate it means that the stock has frequent small gains and a few large losses.

Thus increasing/decreasing skewness helps to know whether an investor should invest in a stock in real estate or not.

When a stock has high Kurtosis , it implies that the stock will either give a very high or a very low return if invested on it.

When the stock has low Kurtosis, it implies that the returns are average  i.e. neither very low nor very high.

Part-B:

Decisions:

If an investor can take risk then he/she will invest in stocks which have high Kurtosis value and positive Skewness.

Otherwise if he/she cant stand volatilty in future he will refrain from investing in stocks with high Kurtosis value and instead invest in stock which provide average postive returns.

Part-C:

In real estate investments it is difficult to predict skewness/kurtosis of a stock.

It depends on the economy of the nation and also how well the stock is managed by the fund manager.

However most funds with huge capitals would do good if one remains invested for a longer time instaed of a shorter time span.

Hence skewness/kurtosis changes with the economy and with the stock manager.