From poverty measurement to the measurement of downside risk

It is well known that a close relation between the measurement of inequality and the measurement of risk exists. We demonstrate a similar relation between measures of poverty and downside risk, respectively. Based on properties of poverty measures, a number of axioms for reasonable downside risk measures is suggested and applied to the class of decomposable indices, which includes the lower partial moments as special cases. In a more general perspective, the paper enables those interested in measuring the downside risk of distributions to build upon the wealth of literature on poverty measurement when looking for suitable indices. (C) 2003 Elsevier B.V. All rights reserved.