Optimal rebalance rules for the constant proportion portfolio insurance strategy – Evidence from China |
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| Institution: | 1. College of Economic Administration of China University of Petroleum (East China), Qingdao, Shandong 266580, PR China;2. Antai College of Economics and Management, Shanghai JiaoTong University, Shanghai 200052, PR China;3. School of Economics, Finance and Marketing, RMIT University, Melbourne, VIC 3000, Australia;1. School of Management, Harbin Institute of Technology, Harbin 150001, Heilongjiang Province, PR China;2. College of Mathematics and Computer Science, Hebei University, Baoding 071002, Hebei Province, PR China;1. School of Management, Harbin Institute of Technology, Harbin 150001, Heilongjiang Province, PR China;2. College of Mathematics and Computer Science, Hebei University, Baoding 071002, Hebei Province, PR China;1. School of Economics & Management, China University of Petroleum (East China), Qingdao, China;2. School of Economics and Management, Tongji University, Shanghai, China;1. School of Management, Xi''an Jiaotong University, Xi''an 710049, China;2. School of Mechanical Engineering, Xi''an Jiaotong University, Xi''an 710049, China;3. State Key Laboratory for Manufacturing Systems Engineering, Xi''an Jiaotong University, Xi''an 710049, China;1. School of Management, Harbin Institute of Technology, Harbin 150001, PR China;2. Dipartimento Di Economia Politica E Statistica, Università Di Siena, Siena 53100, Italy;1. Lucentia Research Group, Department of Software and Computing Systems, University of Alicante, Carretera San Vicente del Raspeig s/n, 03690 San Vicente del Raspeig, Alicante, Spain;2. BarcelonaTech, Universitat Politècnica de Catalunya, Calle Jordi Girona, 31, 08034 Barcelona, Spain |
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| 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. |
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| Keywords: | Constant proportion portfolio insurance (CPPI) strategy Rebalance disciplines Rolling window method Moving blocks bootstrap |
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