Which measure of systematic risk should we use? An empirical study on systematical risk and Treynor measure using the economic index of riskiness and operational measure of riskiness

Abstract This paper empirically studies the differences among the systematic risks of three asset pricing models, namely; the mean–variance capital asset pricing model (MV‐CAPM), AS‐CAPM and FH‐CAPM. The last two are derived by replacing variance with the Aumann‐Serrano (AS) index and the Foster‐Hart (FH) as the risk measure in MV‐CAPM. We use the Dow Jones Industrial Average (DJIA) index as a proxy for the market portfolio, and its component stocks to check if the systematic risks and the Treynor measures are different. The monthly return data from January 1997 to October 2017 are used for empirical estimations. The results show that the three systematic risks are highly correlated. Similarly, high correlation is also found for the three Treynor measures. It seems that even though they are derived under different risk measures, they produce almost the same systematic risk and performance measure for individual stocks. Therefore the findings of the present study suggest that any of the above measures can be used in empirical finance in the area of risk management. As this finding is different from those of other studies in the existing literature in this area, this study makes a contribution to the finance literature.