Effectiveness of Risk Parity Investment Strategy: Case of East Asian Emerging Markets
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초록
We study the effectiveness and performance of Risk Parity (RP) investment strategy within East Asian emerg-ing markets, employing the Inverse Volatility (IV) approach. The study comprehensively evaluates the RP port-folio's performance using data from five East Asian emerging markets: China, Indonesia, Malaysia, South Korea, and Thailand. The dataset encompasses both stock and 7-10 years government bonds data. To provide a comprehensive evaluation, the study also compares the RP strategy with equal-weighted and 60/40 strategies. The outcomes highlights the benefits of adopting the IV approach, which prioritizes lower-risk assets and deliv-ers favorable returns while reducing overall volatility. Additionally, the study showcases the potential of the levered RP strategy, offering increased returns while maintaining risk levels comparable to portfolios linked with optimal performance. These noteworthy findings emphasize the substantial advantages of integrating the RP strategy with the IV approach, particularly in the context of asset allocation decision making within the complex landscape of East Asian emerging markets.
Abstract
We study the effectiveness and performance of Risk Parity (RP) investment strategy within East Asian emerg-ing markets, employing the Inverse Volatility (IV) approach. The study comprehensively evaluates the RP port-folio's performance using data from five East Asian emerging markets: China, Indonesia, Malaysia, South Korea, and Thailand. The dataset encompasses both stock and 7-10 years government bonds data. To provide a comprehensive evaluation, the study also compares the RP strategy with equal-weighted and 60/40 strategies. The outcomes highlights the benefits of adopting the IV approach, which prioritizes lower-risk assets and deliv-ers favorable returns while reducing overall volatility. Additionally, the study showcases the potential of the levered RP strategy, offering increased returns while maintaining risk levels comparable to portfolios linked with optimal performance. These noteworthy findings emphasize the substantial advantages of integrating the RP strategy with the IV approach, particularly in the context of asset allocation decision making within the complex landscape of East Asian emerging markets.
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