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Bridge over ocean
1 January 2009 Financial Analysts Journal Volume 65, Issue 1

The Second Moment

  1. Don Ezra

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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