The Study Of Risk Parity Strategy Based On DCC-MVGARCH Model

This paper improves the popular risk parity strategy and applies it to the domestic asset allocation,which provides more scientific guidance for the domestic investors under the background of “asset shortage” in China.Firstly,we use the DCC-MVGARCH model to calculate the dynamic conditional correlation coefficient among the four categories of assets.Then we improve the traditional risk parity strategy and apply it to the portfolio construction compared with other asset allocation strategies after we separate the investors into institutional investors and individuals according to the investors' risk tolerance to decide what kind of assets to use.We find out that only the dynamic correlation coefficient between the Shanghai Composite Index and the South China Commodity Index is always positive and gradually increases.The dynamic conditional correlation coefficients among other categories are always hovering around zero.In addition,in whichever case,the improved risk parity strategy would perform at least as well as the initial risk parity strategy.When the correlations among the assets are negative,the improved risk parity strategy would do better.For institutional investors,the improved risk parity strategy can achieve a higher Sharp ratio than other asset allocation strategies.For individual investors,the two kinds of risk parity strategies' performance are almost the same,but both are better than other asset allocation strategies.