In this paper, Edward Qian, and Bryan Belton, show that adding a levered U.S. Treasury position to Yale’s portfolio would not only have increased return, but also reduced risk. These improvements occur not just during the global financial crisis, but over the entire 20- year sample period — the ultimate free lunch. They also test using Risk Parity as a tool to implicitly add leverage without applying explicit leverage to the balance sheet. Replacing Yale’s public market investments with a 15% volatility Risk Parity allocation could have also increased return and reduced total portfolio risk.

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