RT Journal Article
SR Electronic
T1 The Properties of Equally Weighted Risk Contribution Portfolios
JF The Journal of Portfolio Management
FD Institutional Investor Journals
SP 60
OP 70
DO 10.3905/jpm.2010.36.4.060
VO 36
IS 4
A1 Maillard, Sébastien
A1 Roncalli, Thierry
A1 Teïletche, Jérôme
YR 2010
UL http://jpm.pm-research.com/content/36/4/60.abstract
AB Minimum-variance portfolios and equally weighted portfolios have recently prompted great interest from both academic researchers and market practitioners because their construction does not rely on expected average returns and, therefore, is assumed to be robust. In this article, the authors consider a related approach in which the risk contribution from each portfolio component is made equal, maximizing the diversification of risk, at least, on an ex ante basis. Roughly speaking, the resulting portfolio is similar to a minimum-variance portfolio subject to a diversification constraint on the weights of its components. The authors derive the theoretical properties of such a portfolio and show that its volatility is located between those of minimum-variance and equally weighted portfolios. Empirical applications confirm that ranking. Equally weighted risk contribution portfolios appear to be an attractive alternative to minimum-variance and equally weighted portfolios and, therefore, could be considered a good trade-off between the two approaches in terms of absolute risk level, risk budgeting, and diversification.TOPICS: Portfolio construction, analysis of individual factors/risk premia, volatility measures