TY - JOUR T1 - On the Popularity of the CPPI Strategy: <em>A Behavioral-Finance-Based Explanation and Design Recommendations</em> JF - The Journal of Wealth Management SP - 41 LP - 54 DO - 10.3905/jwm.2010.13.2.041 VL - 13 IS - 2 AU - Hubert Dichtl AU - Wolfgang Drobetz Y1 - 2010/07/31 UR - https://pm-research.com/content/13/2/41.abstract N2 - The constant proportion portfolio insurance (CPPI) strategy is frequently used on both the institutional and the retail sides of the asset management industry. While standard finance theory struggles to justify its popularity, this article attempts to explain the widespread use of the CPPI strategy by referring to elements of behavioral finance. We run bootstrap as well as Monte Carlo simulations for the CPPI strategy and for simple benchmark strategies in order to evaluate the outcomes using cumulative prospect theory. Our simulation results indicate that the CPPI strategy is the preferred strategy for a prospect theory investor. The analysis provides hints at how a CPPI-based investment product should be designed in order to meet the preferences of a prospect theory investor as well as possible.TOPICS: Financial crises and financial market history, portfolio construction, simulations, in portfolio management ER -