RT Journal Article
SR Electronic
T1 Diversified Risk Parity Strategies for Equity Portfolio Selection
JF The Journal of Investing
FD Institutional Investor Journals
SP 111
OP 128
DO 10.3905/joi.2012.21.3.111
VO 21
IS 3
A1 Lohre, Harald
A1 Neugebauer, Ulrich
A1 Zimmer, Carsten
YR 2012
UL http://joi.pm-research.com/content/21/3/111.abstract
AB This article investigates a new way of equity portfolio selection that provides maximum diversification along the uncorrelated risk sources inherent in the S&P 500.This diversified risk parity strategy is distinct from prevailing risk-based portfolio construction paradigms. Especially, the strategy is characterized by a concentrated allocation that actively adjusts to changes in the underlying risk structure. In addition, x-raying the risk and diversification characteristics of traditional risk-based strategies like 1/N, minimum-variance, risk parity, or the most-diversified portfolio, the authors find the diversified risk parity strategy to be superior. Although most of these alternatives crucially pick up risk-based pricing anomalies like the low-volatility anomaly, the diversified risk parity strategy more effectively exploits systematic factor tilts.TOPICS: Equity portfolio management, portfolio construction, factor-based models