Credit Suisse Terms High Risk Parity Impact Numbers As “Doomsday Scenario,” Points To Lower Estimates

A Credit Suisse report notes the most disconcerting aspect of the recent market turmoil is not the size of the decline – “size doesn’t matter” – but rather it’s the viciousness of the intraday market reversals, the volatility that seems to turn on a dime, that is the issue. As Credit Suisse's Ed Tom scans the likely suspects, he asks the question in a September 10 report: “Is Risk Parity Deleveraging Driving Market Reversals?”

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Risk parity measured using long term metrics, reduces volatility by selling leveraged equities

The goal of risk parity is to position the portfolio to capture risk premiums over a long...