Abstract

http://ssrn.com/abstract=53503
 
 

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Diversification, Rebalancing, and the Geometric Mean Frontier


William J. Bernstein


Frontier Advisors

David J. Wilkinson


Efficient Solutions Inc.

November 24, 1997


Abstract:     
The effective (geometric mean) return of a periodically rebalanced portfolio always exceeds the weighted sum of the component geometric means. Some approximate formulae for estimating this effective return are derived and tested. One special case of these formulae is shown to be particularly simple, and is used to provide easily computed estimates of the benefits of diversification and rebalancing. The results are also used to show how classical Mean-Variance Optimization may be modified to generate the Geometric Mean Frontier, the analog of the efficient frontier when the geometric mean is used as the measure of portfolio return.

Number of Pages in PDF File: 27

JEL Classification: G1, C0, C6, C7

working papers series


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Date posted: January 16, 1998  

Suggested Citation

Bernstein, William J. and Wilkinson, David J., Diversification, Rebalancing, and the Geometric Mean Frontier (November 24, 1997). Available at SSRN: http://ssrn.com/abstract=53503 or http://dx.doi.org/10.2139/ssrn.53503

Contact Information

William J. Bernstein
Frontier Advisors ( email )
1890 Waite Dr. Suite 3
North Bend, 97459
541-756-0668 (Phone)
541-756-3774 (Fax)
David J. Wilkinson (Contact Author)
Efficient Solutions Inc. ( email )
311 Ned's Mountain Road
Ridgefield, CT 06877
United States
(203)744-4023 (Phone)
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References:  9
Citations:  4

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