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The Mismeasurement of Risk

Posted: 19 Oct 2002  

Mark Kritzman

Windham Capital Management

Don R. Rich

affiliation not provided to SSRN


Investors typically measure risk as the probability of a given loss or the amount that can be lost with a given probability at the end of their investment horizons. This view of risk considers only the final result, but investors perceive (or should perceive) risk differently. They are affected by exposure to loss throughout the investment period, not just at its conclusion. We introduce two new ways of measuring risk - within-horizon probability of loss and continuous value at risk - which reveal that exposure to loss is substantially greater than investors normally assume.

Suggested Citation

Kritzman, Mark and Rich, Don R., The Mismeasurement of Risk. Financial Analysts Journal, Vol. 58, No. 3, May/June 2002. Available at SSRN:

Mark Kritzman (Contact Author)

Windham Capital Management ( email )

5 Revere Street
Cambridge, MA 02138
United States
617-576-7360 (Phone)
617-576-7359 (Fax)

Don R. Rich

affiliation not provided to SSRN

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