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Asset allocation via life-cycle adjusted PPI strategy: evidence from the U.S. and China stock market

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  • Shengqi Yang
  • Lin He

Abstract

In this article, we extend the Proportion Portfolio Insurance (PPI) strategy by a life-cycle adjusted multiplier to adapt to the scenario of multi-period investment with continuous cash inflows, such as variable annuity with minimal guarantees. Using variational methods, we establish the closed-form optimal risk multiplier that determines the proportion of risky assets. It is negatively correlated with the life-cycle phase and previous performance but positively correlated with market conditions. We test the effectiveness of the life-cycle adjusted PPI strategy in a discrete-time framework for application considerations. In the U.S. and China stock markets, the life-cycle strategies outperform benchmark strategies under various measurements with robust results. Variable annuity investors who are less risk-averse or accept a lower guarantee ratio can benefit most from our strategy.

Suggested Citation

  • Shengqi Yang & Lin He, 2025. "Asset allocation via life-cycle adjusted PPI strategy: evidence from the U.S. and China stock market," Applied Economics, Taylor & Francis Journals, vol. 57(3), pages 251-266, January.
    • Handle: RePEc:taf:applec:v:57:y:2025:i:3:p:251-266
    DOI: 10.1080/00036846.2024.2303615
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