Variance and Lower Partial Moment Measures of Systematic Risk: Some Analytical and Empirical Results

KELLY PRICE, BARBARA PRICE, TIMOTHY J. NANTELL

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Abstract

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. 1982 The American Finance Association

Original languageEnglish (US)
Pages (from-to)843-855
Number of pages13
JournalThe Journal of Finance
Volume37
Issue number3
DOIs
StatePublished - Jun 1982

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