The Portfolio Insurance in the ETFs Market: analysis and application of asset allocation strategies

Abstract

This thesis explores the portfolio insurance theory in relation to the exchange-traded funds market. After its inception, between the late 1970s and the early 1980, the portfolio insurance met a rapid growth alongside the development in the financial market of new exchange-traded products. The exchange-traded funds market, which had its effective origin in 1993, had a fundamental role for the success of the portfolio insurance among institutional investors. First, this paper defines and compares some of the most popular asset allocation schemes employed for portfolio insurance purposes, with a particular emphasis on the four main families of strategies: the Buy and Hold, the Constant Mix, the Constant Proportion, the Option Based and their variations. Therefore, a comprehensive overview of the ETFs market follows, while the empirical analysis provides insight into the application of the portfolio insurance strategies to ETFs historical market data and compares them through some performance ratios.