Asset allocation via life-cycle adjusted PPI strategy: evidence from the U.S. and China stock market

Shengqi Yang and Lin He

Applied Economics, 2025, vol. 57, issue 3, 251-266

Abstract: In this article, we extend the Proportion Portfolio Insurance (PPI) strategy by a life-cycle adjusted multiplier to adapt to the scenario of multi-period investment with continuous cash inflows, such as variable annuity with minimal guarantees. Using variational methods, we establish the closed-form optimal risk multiplier that determines the proportion of risky assets. It is negatively correlated with the life-cycle phase and previous performance but positively correlated with market conditions. We test the effectiveness of the life-cycle adjusted PPI strategy in a discrete-time framework for application considerations. In the U.S. and China stock markets, the life-cycle strategies outperform benchmark strategies under various measurements with robust results. Variable annuity investors who are less risk-averse or accept a lower guarantee ratio can benefit most from our strategy.

Date: 2025
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DOI: 10.1080/00036846.2024.2303615

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