Abstract
The authors propose in this article a downside risk-parity strategy for optimal asset allocation. In contrast to the classical risk-parity strategy, this new strategy requires that each asset in a portfolio contribute the same downside risk to the portfolio’s total downside risk. By focusing on the downside semivariance rather than the whole variance, the proposed strategy has the potential to eschew huge loss and, hence, to realize stable performance and a high Sharpe ratio in the long run. The authors demonstrate the satisfactory properties of the proposed strategy via extensive empirical analyses. The proposed downside risk-parity strategy outperforms risk parity, minimum variance, and other risk-based strategies, with a higher Sharpe ratio and smaller maximum drawdown in most cases.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
