What's the Big Deal About Risk Parity?

Journal of Asset Management, September 2017, v(18)5, 341-346

Posted: 26 Jul 2017

See all articles by Anna Agapova

Anna Agapova

Florida Atlantic University

Robert Ferguson

AnswersToGo

Dean Leistikow

Fordham University - Finance Area

Danny Meidan

Independent

Date Written: September 1, 2017

Abstract

It is often argued in defense of Risk Parity portfolios that they maximize the Sharpe ratio if their securities have identical Sharpe ratios and identical correlations. However, securities have neither identical Sharpe ratios nor this correlation structure. In realistic markets, Risk Parity portfolios do not maximize the Sharpe ratio, do not minimize variance, do not maximize the Information ratio, and do not have any other commonly sought optimal property. So, what's the big deal about Risk Parity?

Keywords: risk parity, risk, portfolio optimization, Sharpe ratio

JEL Classification: G10, G11

Suggested Citation

Agapova, Anna and Ferguson, Robert and Leistikow, Dean and Meidan, Danny, What's the Big Deal About Risk Parity? (September 1, 2017). Journal of Asset Management, September 2017, v(18)5, 341-346. Available at SSRN: https://ssrn.com/abstract=2997664

Anna Agapova

Florida Atlantic University ( email )

Finance Department
777 Glades Rd
Boca Raton, FL 33431
United States
561-297-3493 (Phone)

Robert Ferguson (Contact Author)

AnswersToGo ( email )

6815 Edgewater Drve
Apt 208
Coral Gables, FL FL 33133
United States
7868974573 (Phone)

Dean Leistikow

Fordham University - Finance Area ( email )

33 West 60th Street
New York, NY 10023
United States

Danny Meidan

Independent ( email )

No Address Available

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