Concerns about the risks so-called risk parity strategies pose to the global financial system are growing. A day after my previous article on the risks, risk parity strategies could pose, [Concerns Over Risk Parity Grow] JPMorgan told clients that Volatility Target strategies, CTAs and Risk Parity portfolios could sell a combined total of $150 billion to $300 billion of equities during the next few weeks as momentum drives selling.
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Risk parity strategies tend to invest in equities based on past price performance and volatility, and an increase in volatility is likely to drive selling as these portfolios look to rebalance.
From JPMorgan (August 27th 2015 note from Quant team) on risk parity:
Risk Parity is one of the most popular and (historically) successful portfolio construction methodologies. Risk...
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