Diversification Return, Portfolio Rebalancing, and the Commodity Return Puzzle

Posted: 9 Aug 2011

See all articles by Scott Willenbrock

Scott Willenbrock

University of Illinois at Urbana-Champaign

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Date Written: August 9, 2011

Abstract

Diversification return is an incremental return earned by a rebalanced portfolio of assets. The author argues that the underlying source of the diversification return is the rebalancing; in contrast, the incremental return of a buy-and-hold portfolio is driven by the fact that the best-performing assets become a greater fraction of the portfolio. On the basis of these findings, the author resolves two aspects of a puzzle associated with Gorton and Rouwenhorst’s index of commodity futures.

Keywords: Portfolio Management, Portfolio Construction and Revision, Portfolio Monitoring and Rebalancing, Diversification Issues, Alternative Investments, Commodities

Suggested Citation

Willenbrock, Scott, Diversification Return, Portfolio Rebalancing, and the Commodity Return Puzzle (August 9, 2011). Financial Analysts Journal, Vol. 67, No. 4, 2011, Available at SSRN: https://ssrn.com/abstract=1907311

Scott Willenbrock (Contact Author)

University of Illinois at Urbana-Champaign ( email )

1110 West Green Street
Urbana, IL 61801-3080
United States

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