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

Kelly Price, Barbara Price and Timothy J. Nantell
The Journal of Finance
Vol. 37, No. 3 (Jun., 1982), pp. 843-855
Published by: Wiley for the American Finance Association
DOI: 10.2307/2327712
Stable URL: http://www.jstor.org/stable/2327712
Page Count: 13
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Variance and Lower Partial Moment Measures of Systematic Risk: Some Analytical and Empirical Results
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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.

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