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

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. (C) 2002 Elsevier Science B.V. All rights reserved.