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Variance and Lower Partial Moment Measures of Systematic Risk: Some Analytical and Empirical Results
Author(s) -
PRICE KELLY,
PRICE BARBARA,
NANTELL TIMOTHY J.
Publication year - 1982
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1982.tb02227.x
Subject(s) - systematic risk , measure (data warehouse) , econometrics , statistics , risk measure , moment (physics) , mathematics , variance (accounting) , log normal distribution , actuarial science , economics , computer science , financial economics , physics , portfolio , accounting , classical mechanics , database
As a measure of systematic risk, the lower partial moment measure requires fewer restrictive assumptions than does the variance measure. However, the latter enjoys far wider usage than the former, perhaps because of its familiarity and the fact that two measures of systematic risk are equivalent when return distributions are normal. This paper shows analytically that there are systematic differences in the two risk measures when return distributions are lognormal. Results of empirical tests show that there are indeed systematic differences in measured values of the two risk measures for securities with above average and with below average systematic risk.