The Second Moment

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Financial Analysts Journal
January/February 2009 | Vol. 65 | No. 1 | 3 pages
Source: CFA Institute
Don Ezra

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This brief article discusses the statistical “second moment” that measures the variability in a distribution. Over the years, society’s focus has expanded from looking only at first moments to considering second moments. A consideration of second moments of the distributions of an array of economic variables can aid in understanding societal concerns about outcomes and risk tolerance following the recent global financial crisis. Such an understanding provides a basis for interpreting the use of various mechanisms, including prudent asset allocation, options, regulation of the freedom to make contracts, state participation in markets, and taxation.

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