Investors’ perspective on portfolio insurance : expected utility vs prospect theories
Autor(a) principal: | |
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Data de Publicação: | 2023 |
Outros Autores: | |
Tipo de documento: | Artigo |
Idioma: | eng |
Título da fonte: | Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
Texto Completo: | http://hdl.handle.net/10400.5/27704 |
Resumo: | This study supports the use of behavioural finance to explain the popularity of portfolio insurance. Portfolio insurance strategies are important financial solutions sold to institutional and individual investors that protect against downside risk while maintaining some upside valuation potential. The way some of these strategies are engineered has been criticised and portfolio insurance itself blamed for increasing market volatility in depressed markets. Despite this, investors keep on buying portfolio insurance that keeps its solid market share. This study contributes to understand the phenomenon. We compare individual investors’ decision using two distinct frameworks: expected utility theory and behavioural theories. Based upon Monte Carlo simulation techniques we compare portfolio insurance strategies against uninsured basic benchmark strategies, for a wide variety of market scenarios. We conclude that cumulative prospect theory may be a viable framework to explain the popularity of portfolio insurance. However, among portfolio insurance strategies, naïve strategies seem to be preferable to most commonly traded strategies. |
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Investors’ perspective on portfolio insurance : expected utility vs prospect theoriesPortfolio insuranceExpected utilityProspect theoryMonte Carlo simulationThis study supports the use of behavioural finance to explain the popularity of portfolio insurance. Portfolio insurance strategies are important financial solutions sold to institutional and individual investors that protect against downside risk while maintaining some upside valuation potential. The way some of these strategies are engineered has been criticised and portfolio insurance itself blamed for increasing market volatility in depressed markets. Despite this, investors keep on buying portfolio insurance that keeps its solid market share. This study contributes to understand the phenomenon. We compare individual investors’ decision using two distinct frameworks: expected utility theory and behavioural theories. Based upon Monte Carlo simulation techniques we compare portfolio insurance strategies against uninsured basic benchmark strategies, for a wide variety of market scenarios. We conclude that cumulative prospect theory may be a viable framework to explain the popularity of portfolio insurance. However, among portfolio insurance strategies, naïve strategies seem to be preferable to most commonly traded strategies.SpringerRepositório da Universidade de LisboaGaspar, Raquel M.Silva, Paulo M.2023-05-04T10:06:07Z20232023-01-01T00:00:00Zinfo:eu-repo/semantics/publishedVersioninfo:eu-repo/semantics/articleapplication/pdfhttp://hdl.handle.net/10400.5/27704engGaspar, Raquel M. e Paulo M. Silva (2023). "Investors’ perspective on portfolio insurance : expected utility vs prospect theories". Portuguese Economic Journal, 22(1):49-79. https://doi.org/10.1007/s10258-021-00200-z1617-982X10.1007/s10258-021-00200-zmetadata only accessinfo:eu-repo/semantics/openAccessreponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos)instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãoinstacron:RCAAP2023-05-07T01:31:00Zoai:www.repository.utl.pt:10400.5/27704Portal AgregadorONGhttps://www.rcaap.pt/oai/openaireopendoar:71602024-03-19T17:50:58.016740Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informaçãofalse |
dc.title.none.fl_str_mv |
Investors’ perspective on portfolio insurance : expected utility vs prospect theories |
title |
Investors’ perspective on portfolio insurance : expected utility vs prospect theories |
spellingShingle |
Investors’ perspective on portfolio insurance : expected utility vs prospect theories Gaspar, Raquel M. Portfolio insurance Expected utility Prospect theory Monte Carlo simulation |
title_short |
Investors’ perspective on portfolio insurance : expected utility vs prospect theories |
title_full |
Investors’ perspective on portfolio insurance : expected utility vs prospect theories |
title_fullStr |
Investors’ perspective on portfolio insurance : expected utility vs prospect theories |
title_full_unstemmed |
Investors’ perspective on portfolio insurance : expected utility vs prospect theories |
title_sort |
Investors’ perspective on portfolio insurance : expected utility vs prospect theories |
author |
Gaspar, Raquel M. |
author_facet |
Gaspar, Raquel M. Silva, Paulo M. |
author_role |
author |
author2 |
Silva, Paulo M. |
author2_role |
author |
dc.contributor.none.fl_str_mv |
Repositório da Universidade de Lisboa |
dc.contributor.author.fl_str_mv |
Gaspar, Raquel M. Silva, Paulo M. |
dc.subject.por.fl_str_mv |
Portfolio insurance Expected utility Prospect theory Monte Carlo simulation |
topic |
Portfolio insurance Expected utility Prospect theory Monte Carlo simulation |
description |
This study supports the use of behavioural finance to explain the popularity of portfolio insurance. Portfolio insurance strategies are important financial solutions sold to institutional and individual investors that protect against downside risk while maintaining some upside valuation potential. The way some of these strategies are engineered has been criticised and portfolio insurance itself blamed for increasing market volatility in depressed markets. Despite this, investors keep on buying portfolio insurance that keeps its solid market share. This study contributes to understand the phenomenon. We compare individual investors’ decision using two distinct frameworks: expected utility theory and behavioural theories. Based upon Monte Carlo simulation techniques we compare portfolio insurance strategies against uninsured basic benchmark strategies, for a wide variety of market scenarios. We conclude that cumulative prospect theory may be a viable framework to explain the popularity of portfolio insurance. However, among portfolio insurance strategies, naïve strategies seem to be preferable to most commonly traded strategies. |
publishDate |
2023 |
dc.date.none.fl_str_mv |
2023-05-04T10:06:07Z 2023 2023-01-01T00:00:00Z |
dc.type.status.fl_str_mv |
info:eu-repo/semantics/publishedVersion |
dc.type.driver.fl_str_mv |
info:eu-repo/semantics/article |
format |
article |
status_str |
publishedVersion |
dc.identifier.uri.fl_str_mv |
http://hdl.handle.net/10400.5/27704 |
url |
http://hdl.handle.net/10400.5/27704 |
dc.language.iso.fl_str_mv |
eng |
language |
eng |
dc.relation.none.fl_str_mv |
Gaspar, Raquel M. e Paulo M. Silva (2023). "Investors’ perspective on portfolio insurance : expected utility vs prospect theories". Portuguese Economic Journal, 22(1):49-79. https://doi.org/10.1007/s10258-021-00200-z 1617-982X 10.1007/s10258-021-00200-z |
dc.rights.driver.fl_str_mv |
metadata only access info:eu-repo/semantics/openAccess |
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metadata only access |
eu_rights_str_mv |
openAccess |
dc.format.none.fl_str_mv |
application/pdf |
dc.publisher.none.fl_str_mv |
Springer |
publisher.none.fl_str_mv |
Springer |
dc.source.none.fl_str_mv |
reponame:Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) instname:Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação instacron:RCAAP |
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Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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RCAAP |
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RCAAP |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) |
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Repositório Científico de Acesso Aberto de Portugal (Repositórios Cientìficos) - Agência para a Sociedade do Conhecimento (UMIC) - FCT - Sociedade da Informação |
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