Abstract
While risk budgets are the new fashion among investment managers, the investment community has yet to agree on the precise meaning of the term, or, more important, on how risk budgeting relates to asset allocation. Intuitively, a risk budget conveys the notion that a portfolio's risk is somehow apportioned to various categories, but such disaggregation is impossible for many descriptions of risk. The authors explore the issues associated with risk budgets with a view to arriving at a clear and uniform understanding of risk budgets and their role in the investment process.
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