The Risk in Risk Parity: A Factor-based Analysis of Asset-based Risk Parity
Posted: 25 Oct 2012 Last revised: 28 Dec 2016
Date Written: October 25, 2012
The risks embedded in asset-based risk parity portfolios are explored using a simple, economically motivated approach. Such an approach can go a long way toward demystifying and making more explicit the drivers of performance and risks of asset-based risk parity portfolios. Investors in risk parity can use this approach for more robust portfolio construction and for benchmarking and differentiating various risk parity approaches.
Keywords: risk parity, asset allocation, risk factor parity
JEL Classification: G11
Suggested Citation: Suggested Citation