Skewness is a statistical measure of the asymmetry of a probability distribution — specifically, how much the distribution of returns deviates from the symmetrical bell curve of a normal distribution. Positive skewness indicates that the distribution has a longer right tail — meaning occasional large positive returns are more frequent than large negative returns. Negative skewness (left skew) indicates the opposite — extreme losses occur more frequently than extreme gains, a characteristic common in equity returns during market crashes. In options markets, skewness is embedded in the implied volatility surface — a negatively skewed equity market means OTM puts are more expensive than OTM calls (the volatility skew), reflecting the market's pricing of downside tail risk. For Indian equity portfolio managers and risk analysts, understanding the skewness of portfolio returns is essential — a portfolio with strong average returns but significant negative skewness may be exposed to catastrophic drawdowns during rare but extreme market events such as the COVID-19 crash of March 2020.
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