RT Journal Article
SR Electronic
T1 Risk Parity Optimality
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 42
OP 56
DO 10.3905/jpm.2015.41.2.042
VO 41
IS 2
A1 Gregg S. Fisher
A1 Philip Z. Maymin
A1 Zakhar G. Maymin
YR 2015
UL https://pm-research.com/content/41/2/42.abstract
AB In this article, the authors show under general conditions that the probability of risk parity beating any other portfolio is more than 50%. They also prove the maximin properties of a risk-parity portfolio under two scenarios: 1) when all assets’ future Sharpe ratios are greater than some positive unknown constant and all correlations are less than another unknown constant, or 2) when the sum of all assets’ future Sharpe ratios is greater than some unknown constant. In each case, the authors show that risk parity is the unique maximin portfolio. Finally, the authors empirically confirm their theoretical results for the two main asset classes.TOPICS: Portfolio construction, analysis of individual factors/risk premia, statistical methods