Determining an Optimal Multiplier in Dynamic Core-Satellite Strategies

Journal of Asset Management, Vol. 14(4), 2013

25 Pages Posted: 25 Jan 2016

See all articles by Thibaut Caliman

Thibaut Caliman

Louvain School of Management (UCL)

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance

Mikael Petitjean

Catholic University of Lille - IÉSEG School of Management, Lille Campus; Lille Economie & Management (LEM) UMR 9221; Louvain School of Management (UCL); Catholic University of Louvain (UCL) - Louvain Finance (LFIN)

Date Written: October 15, 2013

Abstract

This paper investigates the performance of various multiplier techniques in reducing downside risk for dynamic core-satellite portfolios. Using Monte Carlo simulations calibrated on monthly data for three different portfolios over a ten-year period, we show that the dynamic IR/TE multiplier offers the best level of capital protection, as the specified floor is violated in less than 1% of the cases. Even though other multipliers might offer higher average excess returns, the IR/TE multiplier still captures a significant fraction of the satellite excess return. In addition, it delivers an almost constant average floor violation rate.

Keywords: Dynamic, core, satellite, multiplier, downside risk, protection

JEL Classification: G18, G28

Suggested Citation

Caliman, Thibaut and D'Hondt, Catherine and Petitjean, Mikael, Determining an Optimal Multiplier in Dynamic Core-Satellite Strategies (October 15, 2013). Journal of Asset Management, Vol. 14(4), 2013 . Available at SSRN: https://ssrn.com/abstract=2720410

Thibaut Caliman

Louvain School of Management (UCL) ( email )

Belgium

Catherine D'Hondt

UCLouvain, Louvain School of Management - Louvain Finance ( email )

151 Chaussée de Binche
Mons, 7000
Belgium

Mikael Petitjean (Contact Author)

Catholic University of Lille - IÉSEG School of Management, Lille Campus ( email )

3 rue de la Digue
Lille, 59000
France
0032497301266 (Phone)
59000 (Fax)

Lille Economie & Management (LEM) UMR 9221 ( email )

Lille
France

Louvain School of Management (UCL) ( email )

Belgium

Catholic University of Louvain (UCL) - Louvain Finance (LFIN) ( email )

34 Voie du Roman Pays - L1.03.01
Louvain-la-Neuve, 1348
Belgium

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