WHEN MEAN-SQUARE ERROR BECOMES VARIANCE - A COMMENT ON BUSINESS RISK AND RETURN - A TEST OF SIMULTANEOUS RELATIONSHIPS

In a recent article, Oviatt and Bauerschmidt (1991) investigated risk- return relationship by employing the square root of the mean square er ror of returns as a measure of risk and found no significant relations hip existed in those terms. Ruefli (1991) has suggested that under the assumption of stable distributions there is the possibility of spurio us correlation in estimating the risk-return relationship in mean-vari ance terms. This comment identifies the commonalities between mean squ are error and variance measures, shows that the former measure is subj ect to many of the problems of the latter, and presents further eviden ce regarding the likelihood of spurious correlation in industry studie s of risk and return. The results suggest an alternative and more pars imonious explanation for Oviatt and Bauerschmidt's findings as well as for the findings reported in the wider strategic management research literature.