Risk-on risk-off: implications for investors in the Australian stock and bond markets

Abstract

Risk-on risk-off (RORO) effects were present in Australian and international financial markets from July 2007 to December 2012. This study shows that a risk-parity portfolio which combines both equities and bonds generates a higher Sharpe ratio than investing in either equities or bonds alone over a sample period incorporating both RORO and non-RORO periods. An earlier version of the paper was presented to the 2013 Australian Centre for Financial Studies' Melbourne Money and Finance Conference.