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Which of the following is FALSE about risk parity strategies? Group of answer choices Managers...

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Finance

Which of the following is FALSE about risk parity strategies?

Group of answer choices

Managers adjust the expected return target of their Risk Parity strategies via levering or de-levering their portfolios to the desired risk level. This is facilitated using derivatives to obtain the asset exposures instead of physical stocks, bonds and commodities.

In Risk Parity strategies, US & foreign Govt. bonds are typically levered due to their lower risk vs. stocks.

In Risk Parity strategies, asset classes such as US & non-US equities, Govt. Bonds, and inflation-oriented assets such as commodities & TIPS all have the same capital allocation.

In Risk Parity strategies, asset classes such as US & non-US equities, Govt. Bonds, and inflation-oriented assets such as commodities & TIPS have the same contribution to portfolio risk.

A key assumption in Risk Parity strategies is that broad asset classes such as US & foreign stocks, US & foreign Govt bonds, and inflation assets such as commodities & TIPS all have essentially same Sharpe Ratio over time.

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