Risk parity in the brazilian market

Pierre De souza (), Tiago Filomena (), João Caldeira (), Denis Borenstein () and Marcelo Righi ()
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Pierre De souza: Management School, Federal University of Rio Grande do Sul, Porto Alegre, Brazil
Tiago Filomena: Management School, Federal University of Rio Grande do Sul, Porto Alegre, Brazil
João Caldeira: Department of Economics, Federal University of Rio Grande do Sul, Porto Alegre, Brazil
Denis Borenstein: Management School, Federal University of Rio Grande do Sul, Porto Alegre, Brazil
Marcelo Righi: Management School, Federal University of Rio Grande do Sul, Porto Alegre, Brazil

Economics Bulletin, 2017, vol. 37, issue 3, 1555-1566

Abstract: Using sectorial indices of the Brazilian market, we compare the portfolio optimization approach known as risk parity with minimum variance and equally weighted approaches. We apply various estimators for the covariance matrix to each portfolio strategy, since portfolio variance is considered as risk measure. Empirical results demonstrate that the risk parity approach provides more diversified portfolios and stable weights in the out-of-sample than the other two approaches, thereby avoiding the dangers of excessive concentration and reducing transaction costs. Furthermore, the results demonstrate that different estimators of the covariance matrix had little influence on the results obtained through the risk parity approac

Keywords: portfolios optimization; Risk Parity; covariance matrix estimation; sector indices (search for similar items in EconPapers)
JEL-codes: C6 G1 (search for similar items in EconPapers)
Date: 2017-07-08
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