Optimal rebalance rules for the constant proportion portfolio insurance strategy – Evidence from China

Tao Zhang, Hongfeng Zhou, Larry Li and Feng Gu

Economic Systems, 2015, vol. 39, issue 3, 413-422

Abstract: The constant proportion portfolio insurance (CPPI) strategy is one of the most popular asset allocation strategies employed by guaranteed-return financial products investors. Rebalance disciplines play an important role in determining the CPPI performance in practice. This paper examines whether the selection of rebalance rules affects CPPI strategy performance in the context of Chinese equity markets and, if so, in what pattern, and whether an optimal parameter of rebalance exists. We find that, (1) the three alternative rebalance disciplines – time discipline, market move discipline and lag discipline – are indifferent in affecting the performance of CPPI strategy; (2) in terms of optimal parameters of each rebalance rule, the optimal rebalancing period for the time discipline is 3 trading days, the optimal trading threshold of the market move discipline 4%, and the optimal lag factor of the lag discipline 6%. These optimal parameters are not influenced by the length of investment.

Keywords: Constant proportion portfolio insurance (CPPI) strategy; Rebalance disciplines; Rolling window method; Moving blocks bootstrap (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecosys:v:39:y:2015:i:3:p:413-422

DOI: 10.1016/j.ecosys.2015.02.001

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