RT Journal Article
SR Electronic
T1 The Resale Value of Risk-Parity Equity Portfolios
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 23
OP 32
DO 10.3905/jpm.2015.41.2.023
VO 41
IS 2
A1 Sorensen, Eric H.
A1 Alonso, Nicholas F.
YR 2015
UL http://jpm.pm-research.com/content/41/2/23.abstract
AB This article examines the application of risk parity to fully diversify an equity portfolio. It presents wealth accumulation in a stochastic dominance framework, tested over increasing investment horizons. The portfolio construction algorithms consider sector, country, and stocks in achieving an alternative to capitalization-weighted approaches. Risk parity is dominant over 75% of the historical periods for any two-year horizon and is dominant in all cases after six-year horizons. It achieves dominance over capitalization-weighted indices over shorter horizons during periods of higher market volatility, periods of higher inflation, and periods with steep yield curves.TOPICS: Equity portfolio management, commodities, analysis of individual factors/risk premia