The profitability of (most common) dynamic portfolio insurance strategies compared to a simple benchmark; evidence from European stock markets
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2020-08-28
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en
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Although the performance of portfolio insurance strategies has been studied by various academics over the past decades, none of them was able to clarify the effectiveness of portfolio insurance strategies. This study relates to the existing literature by comparing different portfolio insurance strategies by measuring performance, generated by Monte Carlo simulations based on historical data. It goes beyond the existing literature by comparing dynamic portfolio insurance strategies (constant proportion and synthetic put) with a static portfolio insurance strategy (buy-and-hold) with recent post-crisis European data. Hereby, the historical data is based on the volatility and annual returns of the West European stock market from January 2009 to January 2020. This study found although the option-based portfolio insurance intensively adjusted and provides a good floor, it fails to perform better than other strategies in a moderate increasing market. Moreover, we found that the CPPI outperforms the buy-and-hold portfolio, except when it is monthly rebalanced.
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Faculteit der Managementwetenschappen