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Enhancing Risk Parity by Including Views

34 Pages Posted: 12 Aug 2014 Last revised: 20 Sep 2016

Daniel Haesen

Robeco Investment Research

Winfried G. Hallerbach

Robeco Asset Management, Quantitative Investment Research

Thijs D. Markwat

Robeco Asset Management

Roderick Molenaar

Robeco Asset Management

Date Written: December 18, 2014

Abstract

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

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

Daniel Haesen

Robeco Investment Research ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands
+31 10 224 7167 (Phone)

HOME PAGE: http://www.robeco.com/quant

Winfried George Hallerbach (Contact Author)

Robeco Asset Management, Quantitative Investment Research ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands
+31102242316 (Phone)

HOME PAGE: http://www.robeco.com/quant

Thijs Dingeman Markwat

Robeco Asset Management ( email )

Weena 850
3014 DA
Rotterdam
Netherlands

Roderick Molenaar

Robeco Asset Management ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

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