A Modified Risk Parity Method for Asset Allocation
Journal Title: Journal of Economics and Financial Analysis - Year 2019, Vol 3, Issue 1
Abstract
We propose a return based modification of the portfolio variance matrix for asset allocation using risk parity. The modification is based upon a single scalar parameter which can be tuned to tailor the allocation for desired expected risk and/or return. The present work contributes a new twist on risk parity. While classical risk parity methods are based exclusively on volatility, the new solution (Modified Risk Parity) considers both historical returns and their variance in the construction of an optimal, diversified investment portfolio. We present two examples for periods including the recent financial market crises. The results suggest that the modification may lead to significantly improved risk adjusted returns over those realized by the conventional risk parity method.
Authors and Affiliations
Akhilesh MAEWAL, Joel R. BOCK
Keywords
Related Articles
- EP ID EP491954
- DOI -
- Views 127
- Downloads 0
Nonprofit Organizations in Disaster Response and Management: A Network Analysis
This paper tracks changes in the national disaster management system with regard to the nonprofit sector by looking at the roles ascribed to nonprofit organizations in the Federal Response Plan (FRP), National Response P...
Measuring Predictability of Oil and Gas Stock Returns and Performance of Moving Average Trading Rules
The paper re-examines whether investors can predict oil and gas stock prices for abnormal returns using autocorrelation-based trading and filter rules and moving average strategies. In this paper, short and long lengths...
Financial Contagion in the BRICS Stock Markets: An empirical analysis of the Lehman Brothers Collapse and European Sovereign Debt Crisis
This research analyzes and extends the study of contagion for BRICS emerging stock markets in the context of the last two international financial crises: the Lehman Brothers Bankruptcy Crisis and the European Sovereign D...
Asset and Liability Management: Analysis on the Dependence of Assets and Liabilities in Turkish Banking Sector
Asset liability management (ALM) is the traditional risk management practice in banking. ALM is the coordinated and integrated management of assets and liabilities. Some studies argue that ALM lost importance due to the...
Implication of Credit Supervision Practices on Portfolio at risk of Microfinance Institutions in Tanzania
This study seeks to establish the implication of credit supervision practices on portfolio management of microfinance institutions in Tanzania. Utilizing multivariate regression technique over sampled 219 microfinance in...