Journal
JOURNAL OF BANKING & FINANCE
Volume 33, Issue 2, Pages 272-280Publisher
ELSEVIER
DOI: 10.1016/j.jbankfin.2008.08.002
Keywords
Portfolio insurance; Performance evaluation; Stochastic dominance
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This paper evaluates the performance of the stop-loss, synthetic put and constant proportion portfolio insurance techniques based on a block-bootstrap simulation. We consider not only traditional performance measures, but also some recently developed measures that capture the non-normality of the return distribution (value-at-risk, expected shortfall, and the Omega measure). We compare them to the more comprehensive stochastic dominance criteria. The impact of changing the rebalancing frequency and level of capital protection is examined. We find that, even though a buy-and-hold strategy generates higher average excess returns, it does not stochastically dominate the portfolio insurance strategies, nor vice versa. Our results indicate that a 100% floor value should be preferred to lower floor values and that daily-rebalanced synthetic put and CPPI strategies dominate their counterparts with less frequent rebalancing. (c) 2008 Elsevier B.V. All rights reserved.
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