Will My Risk Parity Strategy Outperform?

@article{Anderson2012WillMR,
  title={Will My Risk Parity Strategy Outperform?},
  author={Robert M. Anderson and Stephen W. Bianchi and L. Goldberg},
  journal={FEN Professional \& Practitioner Journal - Forthcoming},
  year={2012}
}
We gauge the return-generating potential of four investment strategies: value weighted, 60/40 fixed mix, unlevered and levered risk parity. We have three main findings. First, even over periods lasting decades, the start and end dates of a backtest can have a material effect on results; second, transaction costs can reverse ranking, especially when leverage is employed; third, a statistically significant return premium does not guarantee outperformance over reasonable investment horizons.