Benchmarking, portfolio insurance and technical analysis: a Monte Carlo comparison of dynamic strategies of asset allocation

• Published in: Journal of economic dynamics & control Vol. 27; no. 6; pp. 987 - 1011
• Main Authors: Cesari, Riccardo, Cremonini, David
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.04.2003; Elsevier; Elsevier Sequoia S.A
• Series: Journal of Economic Dynamics and Control
• Subjects: Asset allocation; Assets; Benchmarking; Benchmarks; Comparative analysis; Economics; Financial planning; Insurance; Monte Carlo simulation; Monte Carlo simulations; Portfolio analysis; Portfolio insurance; Portfolio management; Risk; Risk-adjusted performance; Studies; Technical analysis; Trading strategies; Volatility; Technical analysis; Monte Carlo simulations; C15; G11; Trading strategies; Benchmarking; Portfolio insurance; Risk-adjusted performance
• ISSN: 0165-1889; 1879-1743
• DOI: 10.1016/S0165-1889(02)00052-0

This paper makes an extensive simulation comparison of popular dynamic strategies of asset allocation. For each strategy, alternative measures have been calculated for risk, return and risk-adjusted performance (Sharpe ratio, Sortino ratio, return at risk). Moreover, the strategies are compared in different market situations (bull, bear, no-trend markets) and with different market volatility, taking into account transaction costs and discrete rebalancing of portfolios. The simulations show a dominant role of constant proportion strategies in bear and no-trend markets and a preference for benchmarking strategies in bull markets. These results are independent of the volatility level and the risk-adjusted measure adopted.