THE COST OF DOWNSIDE PROTECTION AND THETIME DIVERSIFICATION ISSUE IN SOUTH ASIAN STOCK MARKETS

Authors

  • L. Alles Dept. of Banking and Finance, Curtin University of Technology, GPO Box U1987, Perth 6001, Australia

Abstract

The objective of this paper is to carry out a comparative study of the cost of downside protection when investing in the stock markets of Bangladesh, India, Pakistan and Sri Lanka, and to investigate the time diversification issue in these markets by examining the variation of this cost as the investment horizon is extended to longer periods. Long horizon investment outcomes are generated using a bootstrapping technique. Time diversification effects are investigated by examining the properties of a protective put strategy and a capital protected equity participation strategy in each country's stock market over investment horizons ranging from one to twenty years. Results indicate that the cost of downside protection differs from one country to another, but there is a common pattern of the cost decreasing as the investment horizon lengthens. In overall terms, the pattern of decreasing protection costs at longer investment horizons is consistent with the notion of time diversification in investment risk.

Keywords: Time Diversification, Downside Protection, South Asian Stock Markets, Protective Put.

 

For full Paper: fmscresearch@sjp.ac.lk

Author Biography

L. Alles, Dept. of Banking and Finance, Curtin University of Technology, GPO Box U1987, Perth 6001, Australia

Dept. of Banking and Finance, Curtin University of Technology, GPO Box U1987, Perth 6001, Australia

Published

2012-12-27

Issue

Vol. 3 (2006): Proceedings of the Third International Conference on Business Management

Section

Articles