Optimal static allocation decisions in the presence of portfolio insurance

Goltz, Felix and Martellini, Lionel and Şimşek, Koray Deniz (2008) Optimal static allocation decisions in the presence of portfolio insurance. Journal of Investment Management , 6 (2). ISSN 0095-4918

This is the latest version of this item.

[img]PDF (Paper - Published) - Repository staff only - Requires a PDF viewer such as GSview, Xpdf or Adobe Acrobat Reader

Official URL: https://www.joim.com/View.asp?Year=2008&Quarter=Se


The focus of this paper is to determine what fraction a myopic risk-averse investor should allocate to investment strategies with convex exposure to stock market returns in a general economy with stochastically time-varying interest rates and equity risk premium. Our conclusion is that typical investors should optimally allocate a sizable fraction of their portfolio to such portfolio insurance strategies, and the associated utility gains are significant. While the fact that static investors would benefit from accessing dynamic investment strategies is in essence not surprising, we have found the size of the rational investment in such structures to be rather remarkable. This strong result is robust with respect to various parametric assumptions, as well as the presence of realistic levels of market frictions and heterogeneous expectations on volatility.

Item Type:Article
Subjects:H Social Sciences > HG Finance
H Social Sciences > HG Finance > HG176.6 Financial engineering
ID Code:10226
Deposited By:Koray Deniz Şimşek
Deposited On:08 Nov 2008 13:39
Last Modified:04 Apr 2011 12:04

Available Versions of this Item

Repository Staff Only: item control page