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Risk-Return Parity Model for the Broad Assets Based on the Fed Model

In: Ieis 2020

Author

Listed:
  • Yanglong Chen

    (Beijing Jiaotong University)

  • Xinyi Mei

    (Beijing Jiaotong University)

  • Qingde Wang

    (National Information Center)

Abstract

The asset allocation has always been an essential research content of global institutional investors. Based on the Fed model, this paper proposes a risk-return parity model for a wide range of assets to balance the returns and risks of institutional investors. Firstly, this paper reviews the proposal and development of the Fed model. Secondly, this paper constructs a measure of the expected return of assets by different assets of medium and long-term cash flow. The measure could compare valuations of the broad investment assets such as fixed income, stocks, trust, real estate, and maximize the revenue under the regulatory constraints. Meantime, this paper puts forward the model of asset parity and makes empirical retrospection. Finally, this paper introduces the risk adjustment factors of each asset and proposes a risk-return parity model for a large class of assets based on the Fed model. This paper enriches the theoretical system of asset allocation and has widespread practical application value.

Suggested Citation

  • Yanglong Chen & Xinyi Mei & Qingde Wang, 2021. "Risk-Return Parity Model for the Broad Assets Based on the Fed Model," Springer Books, in: Menggang Li & Gábor Bohács & Guowei Hua & Daqing Gong & Xiaopu Shang (ed.), Ieis 2020, pages 367-379, Springer.
    • Handle: RePEc:spr:sprchp:978-981-33-4363-4_28
    DOI: 10.1007/978-981-33-4363-4_28
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