Testable stuff: Discuss the basic components, risk tolerance assumptions, and relative performance in different market conditions for: Buy and hold Constant weight Cppi Ill throw my 2 cents tomorrow.
Buy and hold - make initial investment and do nothing, never outperforms other 2 strategies Constant weight - periodically adjust to some target allocation, outperforms in a flat but oscillating market, worst performance in trending market CPPI - set floor value, invest risk free floor amount, then increase allocation to risky asset if prices trend up, decrease when prices trend down. Outperforms in trending market, underperforms in flat, volatile markets
Buy and hold- explanatory, isn’t it? Will fall between the other two in all cases, M value of 1. Constant mix- standard rebalancing to original SAA, outperforms in reversing markets, underperforms in trending markets, M value of less than 1, selling portfolio insurance, cheaper trading as it’s contrarian CPPI- floor value in risk free, invest in risky in growth periods, sell risky in down periods. M value greater than one, convex, momentum trading costs are higher, buying portfolio insurance. P.S. I’m into the beers, so my answers are a bit lazy. Also, I can’t remember if it’s the M value, or some other letter. 1 in 26 shot
sbmarti2 Wrote: ------------------------------------------------------- > Buy and hold- explanatory, isn’t it? Will fall > between the other two in all cases, M value of 1. > > Constant mix- standard rebalancing to original > SAA, outperforms in reversing markets, > underperforms in trending markets, M value of less > than 1, selling portfolio insurance, cheaper > trading as it’s contrarian > > CPPI- floor value in risk free, invest in risky in > growth periods, sell risky in down periods. M > value greater than one, convex, momentum trading > costs are higher, buying portfolio insurance. > > P.S. I’m into the beers, so my answers are a bit > lazy. Also, I can’t remember if it’s the M value, > or some other letter. 1 in 26 shot The M values are correct
Thanks. Also forgot to put CPPI is best in trending and worse in reversing, but oh well.
Always remember to throw in linear for buy and hold, concave for constant mix and convex for CPPI…