This article proposes a comparison of risk parity strategy versus other asset allocation methodologies that don’t require expected returns as input (naive risk parity, minimum-variance, equally weighting). Specifically, we empirically test if risk parity is consistently better than other μ-free strategies using two datasets that differ in terms of market conditions and in terms of the number of asset classes in the investment universe. The comparison is undertaken considering three evaluation dimensions: financial efficiency, diversification and asset allocation stability. Relative to the existing literature, we strongly expand the set of tools to be implemented in order to capture these aspects. The findings suggest that risk parity cannot be considered consistently superior relative to other P-free strategies on the basis of the adopted triple view. The results are in line with, and more robust and more well-verified than those achieved by Maillard, Roncalli e Teiletche (2010) and disagree with Chaves et al. (2012).
Risk parity versus other µ-free strategies: a comparison in a triple view
BRAGA M
2015-01-01
Abstract
This article proposes a comparison of risk parity strategy versus other asset allocation methodologies that don’t require expected returns as input (naive risk parity, minimum-variance, equally weighting). Specifically, we empirically test if risk parity is consistently better than other μ-free strategies using two datasets that differ in terms of market conditions and in terms of the number of asset classes in the investment universe. The comparison is undertaken considering three evaluation dimensions: financial efficiency, diversification and asset allocation stability. Relative to the existing literature, we strongly expand the set of tools to be implemented in order to capture these aspects. The findings suggest that risk parity cannot be considered consistently superior relative to other P-free strategies on the basis of the adopted triple view. The results are in line with, and more robust and more well-verified than those achieved by Maillard, Roncalli e Teiletche (2010) and disagree with Chaves et al. (2012).I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.