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After August equity market volatility, commentators have now been lining up to blame risk parity as a driving force behind that volatility. As I’ve said before: we can’t define short term silliness, but like Justice Stewart I can determine short-term silliness whenever I see it. This present dash to use threat parity as a pin pillow is simply another instance of these silliness.
Some peers whom lead our risk parity methods only at AQR . How comen't risk parity the main cause? Well, we think threat parity just is not large enough to come up with the degree of trading required to develop large market gyrations and a lot of not into the degree observed recently.
A far more parsimonious description, though I’d agree a less newsworthy one, is definitely that people got more unfavorable on economic principles in August and re-priced assets and rebalanced their profiles accordingly. I assume that’s an even more boring tale than “Risk parity man bites market”...