Smart Beta and CPPI Performance

Finance, Vol. 37, No. 3, pp. 32-65, 2016

37 Pages Posted: 5 May 2015 Last revised: 15 Nov 2017

See all articles by David Ardia

David Ardia

HEC Montreal - Department of Decision Sciences

Kris Boudt

Ghent University; Vrije Universiteit Brussel; Vrije Universiteit Amsterdam

Marjan Wauters

Vrije Universiteit Brussel (VUB)

Date Written: August 17, 2017

Abstract

CPPIs are popular medium- to long-term investment products that dynamically allocate between a risk-free asset and a risky portfolio, with the objective of combining upside potential with a capital guarantee. This paper uses a block-bootstrap evaluation approach to study whether combining smart beta and portfolio insurance is mutually beneficial under various scenarios. Our results show that the improvement in performance is most apparent for CPPIs combined with a low-risk equity portfolio. This finding is consistent with the negative vega of CPPIs and with path-dependency of the CPPI protection against portfolio losses between rebalancing dates.

Keywords: Bootstrap evaluation; CPPI; Portfolio insurance; Gap risk; Smart beta

JEL Classification: G11

Suggested Citation

Ardia, David and Boudt, Kris and Wauters, Marjan, Smart Beta and CPPI Performance (August 17, 2017). Finance, Vol. 37, No. 3, pp. 32-65, 2016 , Available at SSRN: https://ssrn.com/abstract=2601021 or http://dx.doi.org/10.2139/ssrn.2601021

David Ardia

HEC Montreal - Department of Decision Sciences ( email )

3000 Côte-Sainte-Catherine Road
Montreal, QC H2S1L4
Canada

Kris Boudt

Ghent University ( email )

Sint-Pietersplein 5
Gent, 9000
Belgium

Vrije Universiteit Brussel ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

Vrije Universiteit Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands

Marjan Wauters (Contact Author)

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

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