34 Pages Posted: 12 Aug 2014 Last revised: 20 Sep 2016
Date Written: December 18, 2014
Within the finance literature there is an apparent gap between the inherent risk premium ignorance of a risk parity approach on the one hand and the assumed risk premium clairvoyance of a mean variance approach on the other. We propose a portfolio selection framework that allows an investor to position herself between these two extremes. Depending on the confidence in one’s risk premium estimates, the optimal portfolio will be tilted more towards the risk parity portfolio or to the mean variance portfolio. We illustrate the framework for an investor in an asset allocation context.
Keywords: asset allocation, risk parity, portfolio optimization, Bayesian analysis, Black-Litterman
JEL Classification: C6, C11, C58, G11
Suggested Citation: Suggested Citation
Haesen, Daniel and Hallerbach, Winfried G. and Markwat, Thijs D. and Molenaar, Roderick, Enhancing Risk Parity by Including Views (December 18, 2014). Journal of Investing, 2017. Available at SSRN: https://ssrn.com/abstract=2478751