The Use of Equity Factor Investing for Portfolio Insurance

Risk & Reward, 2018, 3rd issue, pp. 32-38

9 Pages Posted: 26 Nov 2018

See all articles by Harald Lohre

Harald Lohre

Invesco; Centre for Endowment Asset Management, Cambridge Judge Business School, University of Cambridge; Centre for Financial Econometrics, Asset Markets and Macroeconomic Policy, Lancaster University Management School

David Happersberger

Lancaster University - Department of Accounting and Finance; Invesco

Alexandar Cherkezov

Invesco

Date Written: October 22, 2018

Abstract

Equity investments promise high expected returns, but not many investors can tolerate the associated risks. A possible solution may be to complement the equity strategy with a portfolio insurance element which ideally reduces the equity exposure whenever necessary to prevent the overall strategy from breaching a pre-defined floor. Based on a block-bootstrap methodology, we show that the choice of equity underlying is key in this context; in particular, low-volatility underlyings are to be preferred, with other multi-factor propositions forming suitable alternatives when considering additional elements of dynamic risk management.

Keywords: Factor Investing, Portfolio Insurance, CPPI, DPPI

JEL Classification: C58, G11

Suggested Citation

Lohre, Harald and Happersberger, David and Cherkezov, Alexandar, The Use of Equity Factor Investing for Portfolio Insurance (October 22, 2018). Risk & Reward, 2018, 3rd issue, pp. 32-38, Available at SSRN: https://ssrn.com/abstract=3273475

Centre for Endowment Asset Management, Cambridge Judge Business School, University of Cambridge

Cambridge
United Kingdom

HOME PAGE: http://https://www.jbs.cam.ac.uk/faculty-research/centres/ceam/

Centre for Financial Econometrics, Asset Markets and Macroeconomic Policy, Lancaster University Management School

Bailrigg
Lancaster LA1 4YX
United Kingdom

HOME PAGE: http://www.lancaster.ac.uk/lums/research/research-centres/financial-econometrics/

David Happersberger

Lancaster University - Department of Accounting and Finance ( email )

Lancaster, Lancashire LA1 4YX
United Kingdom

Invesco

An der Welle 5
Frankfurt am Main, 60322
Germany

Alexandar Cherkezov

Invesco ( email )

An der Welle 5
Frankfurt am Main, 60322
Germany

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