
The properties of equally-weighted risk contributions portfolios
Teiletche, Jérôme; Roncalli, Thierry; Maillard, Sébastien (2010), The properties of equally-weighted risk contributions portfolios, Journal of Portfolio Management, 36, 4, p. 60-70. http://dx.doi.org/10.3905/jpm.2010.36.4.06
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Article accepté pour publication ou publiéDate
2010Journal name
Journal of Portfolio ManagementVolume
36Number
4Publisher
Institutional Investor Journals
Pages
60-70
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Show full item recordAbstract (EN)
Minimum variance and equally-weighted portfolios have recently prompted great interest both from academic researchers and market practitioners, as their construction does not rely on expected average returns and is therefore assumed to be robust. In this paper, we consider a related approach, where the risk contribution from each portfolio components is made equal, which maximizes diversication 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. We 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. All in all, equally-weighted risk contributions portfolios appear to be an attractive alternative to minimum variance and equally-weighted portfolios and might be considered a good trade-off between those two approaches in terms of absolute level of risk, risk budgeting and diversificationSubjects / Keywords
Asset allocation; portfolio construction; minimum-variance; portfolio diversification; risk budgeting; risk contributionsRelated items
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