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Pierre O. De souza, Tiago P. Filomena, João F. Caldeira, Denis Borenstein and Marcelo B. Righi
 
''Risk parity in the brazilian market''
( 2017, Vol. 37 No.3 )
 
 
Using sectorial indices of the Brazilian market, we compare the portfolio optimization approach known as risk parity with minimum variance and equally weighted approaches. We apply various estimators for the covariance matrix to each portfolio strategy, since portfolio variance is considered as risk measure. Empirical results demonstrate that the risk parity approach provides more diversified portfolios and stable weights in the out-of-sample than the other two approaches, thereby avoiding the dangers of excessive concentration and reducing transaction costs. Furthermore, the results demonstrate that different estimators of the covariance matrix had little influence on the results obtained through the risk parity approach.
 
 
Keywords: portfolios optimization, Risk Parity, covariance matrix estimation, sector indices
JEL: G1 - (G11, G13, G13) Portfolios, Investments, Asset and Futures Pricing, Trading Volume & Bond Interest Rates
C6 - Mathematical Methods and Programming: General
 
Manuscript Received : Jan 24 2017 Manuscript Accepted : Jul 08 2017

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