The Risk Measurement Model Of Semi-Variance And Its Improvement

In the financial markets, investors are the major risk exposures, so each country’s securities regulatory agency regards the stock market’s risk as the main focus.Compared to the mature market environment, China’s stock market has just started for a short time, and it seems quite immature, such as information disclosures, macroeconomic policies and unstandardized regulatory systems, so the stock price is quite frequently fluctuated and severe, and the resulting market risk is also affected greatly. Such a big risk will have a considerable negative impact on China’s economic development and stability in the market, so how to measure the market risk will be the focus of this paper and also is the starting point of the question.The previous measures of the risk is mainly by measuring the volatility of returns, such as variance, standard deviation, beta value, but there are some defects in these measures more or less, so people have adopted the Lower Partial Moment, duration, VaR and other risk measurement methods to promote the accuracy while there are still some limitations.Mean-variance theory is first proposed by Markowitz, and he thinks people can use mean - variance to represent the securities investment’s yields and risks to help choose the effective investment assets. However, if the fluctuation of the downstream market is more fiercely than the fluctuation in the upstream market environment, then the asset held should not be possessed, because when the investor’s wealth levels are low, the rewards of assets are very low. Thus, relative to yield, the high sensitivity of the loss of investors would require a compensation of holding assets, therefore, in economic research, we should focus on downside risk of scales.The downside risk is a more accurate measure in the stock market, more in line with the people’s psychology, and it at least has the same results as the mean-variance model. Choosing the semi-variance to measure the risk of stock market is the require of the progress of calculation, Markowitz (1952) himself admitted:"In addition to the variance, there are also several alternative risk measurement methods, but in theory the most perfect ones should belong to the semi-variance method. "Markowitz devised this indicator and thought it can use the only lower half of the variance to measure the risk. In fact, this calculation is still similar to the variance calculations, but some complex, so Markowitz had to use the indicators of variance.Now, with the progress of the calculation, we have a case to promote the development of semi-variance to get a more accurate measure of risk.