Abstracts

This paper develops two alternative ways to deal with the lack of borrowing in constant proportion strategies linked to balanced funds. One variation focuses on the downside while the other focuses on the upside. The strategies are evaluated under various dynamics with respect to the mean, variance and correlation. The performance evaluation is based on stochastic dominance, partial moments and prospect theory such that the entire distribution is taken into account and asymmetries are accounted for. All performance criteria favor the alternative that focuses on the downside over the alternative that focuses on the upside. The alternatives are not stochastically dominated by the classic strategy. Performance measures based on partial moments favor the alternative that focuses on the downside. Prospect values favor the classic strategy.