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
Date Written: August 17, 2017
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: Suggested Citation