Will My Risk Parity Strategy Outperform?
Robert M. Anderson
University of California, Berkeley - Department of Economics
Stephen W. Bianchi
University of California, Berkeley
Lisa R. Goldberg
University of California at Berkeley
July 6, 2012
We gauge the return-generating potential of four investment strategies: value weighted, 60/40 fixed mix, unlevered and levered risk parity. We have three main findings. First, even over periods lasting decades, the start and end dates of a backtest can have a material effect on results; second, transaction costs can reverse ranking, especially when leverage is employed; third, a statistically significant return premium does not guarantee outperformance over reasonable investment horizons.
Number of Pages in PDF File: 30
Keywords: Risk parity, value weighting, fixed mix, leverage, turnover, trading costs, borrowing costs, market frictions, statistical significance, outperformance, Sharpe ratio
JEL Classification: C10, C12, C13, C15, C22working papers series
Date posted: July 8, 2012 ; Last revised: August 17, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo7 in 0.407 seconds