What’s the big deal about Risk Parity?

Anna Agapova (), Robert Ferguson (), Dean Leistikow () and Danny Meidan ()
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Anna Agapova: Florida Atlantic University
Dean Leistikow: Fordham University - GBA

Journal of Asset Management, 2017, vol. 18, issue 5, No 1, 346 pages

Abstract: 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; Sharpe ratio; optimal portfolio (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1057/s41260-016-0037-0

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