Dynamic strategy performance in Asian markets

• Main Authors: Chin, Sharon Shuyan, Chong, Adeline Pei Ling, Yang, Junrong
• Other Authors: Charlie Charoenwong
• Format: Final Year Project
• Language: English
• Published: 2011
• Subjects: DRNTU::Business::Finance::Equity
• Online Access: http://hdl.handle.net/10356/43669
• Institution: Nanyang Technological University

Existing studies on portfolio insurance present equivocal results on its performance. These studies tend to focus on developed western countries and lacks comparisons of portfolio insurance’s performance with other dynamic strategies. This paper provides an empirical study with extensive comparison of three dynamic strategies: buy-and-hold, constant mix and constant-proportion portfolio insurance (CPPI) using selected Asian market indices. The back testing method is applied and Sharpe ratio is used to evaluate the risk-adjusted performance of these strategies. To increase the real-world relevance of this study for risk-averse investors, short selling is prohibited and transaction costs are included. This study finds that while a dynamically balanced, insured portfolio will not outperform a static mix portfolio over the long run, it is superior to the constant mix portfolio and can provide downside protection in abnormal market conditions like the US subprime mortgage crisis in 2008. Also, increasing bond holdings enhances portfolio performance for all strategies. The findings are useful to institutional funds, such as university endowment funds with a long term investment horizon, and investors with low risk appetite, like pension funds and middle-aged investors, as the strategies investigated offer the desired downside protection to minimize risk exposure.