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Title: Analyzing Risk Parity Investment: A Look at Historical Performance and Future Potential
Authors: Agarwal, Prakhar
Advisors: Mulvey, John
Department: Operations Research and Financial Engineering
Class Year: 2014
Abstract: The risk parity approach to asset allocation differs from the standard dollar weighted system in that it weights and levers constituent asset classes in such a way that they each equally contribute to the total portfolio risk. This paper will present an empirical analysis of the performance of stock and bond risk parity investment. We will consider both the returns of the strategy historically and in simulated future scenarios. Through an analysis of these over various investment horizons and under several risk, return and leverage assumptions, we will present potential explanations of the strategy's historical outperformance, while questioning whether such conditions will likely remain for future investments.
Extent: 108
Type of Material: Princeton University Senior Theses
Language: en_US
Appears in Collections:Operations Research and Financial Engineering, 2000-2017

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