CPPI vs. Buy-and-Hold in Oscillating Markets

CFA Level III
#1

Guys - any idea which one of these two rebalancing strategies does better in an oscillating market? And what is the rationale behind that? Thanks.

#2

buy and hold is always 2nd in the rankings per Schweser

trending up or down =

1 - cppi

2 - b&h

3 - cm

volatile/oscillating =

    • cm

2 - b& h

3 - cppi

#3

Buy and Hold - nothing gets done - you just have your initial holdings (adjusted for market up/down).

CPPI = when market goes up - you buy more equity, when market goes down - you sell equity. So you BUY HIGH, SELL LOW. Lots of impact on your portfolio because of that.

So B&H > CPPI in an oscillating market.

#4

In constant mix you sell on the high and buy on the low because you are always rebalancing to target the target m in stocks

Hence contant mix profits in oscillating markets.

CPK , I think we passed the exams in the same years L1 in June 2008 and L2 in June 2010

Let us pray this is our year , we seem to like even numbers. LOL

#5

you draw a graph, with all 3 over lapping. resulting graph should look like a fish skewer or squid skewer.

thats how you determine which outperforms which. The graph will show the ranking as well.