Wayne State University; Wayne State University; and University of Minnesota respectively. Significant improvements in this manuscript resulted from the comments of Carl Batlin, Donald Bosshardt, Douglas Patterson, Craig Ansley, and Stephen L. Brown.
Variance and Lower Partial Moment Measures of Systematic Risk: Some Analytical and Empirical Results
Article first published online: 30 APR 2012
1982 The American Finance Association
The Journal of Finance
Volume 37, Issue 3, pages 843–855, June 1982
How to Cite
PRICE, K., PRICE, B. and NANTELL, T. J. (1982), Variance and Lower Partial Moment Measures of Systematic Risk: Some Analytical and Empirical Results. The Journal of Finance, 37: 843–855. doi: 10.1111/j.1540-6261.1982.tb02227.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
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.