Testing Rebalancing Strategies for Stock-Bond Portfolios: Where Is the Value Added of Rebalancing?

Midwest Finance Association 2012 Annual Meetings Paper

2012 European Financial Management Symposium on Asset Management

2012 Kölner Finanzmarktkolloquium on Asset Management

27 Pages Posted: 15 Sep 2011 Last revised: 11 Aug 2015

See all articles by Hubert Dichtl

Hubert Dichtl

dichtl research & consulting GmbH

Wolfgang Drobetz

Hamburg University

Martin Wambach

University of Hamburg

Date Written: August 29, 2012

Abstract

We apply a stationary bootstrap approach that enables us to test the value added of rebalancing for stock-bond portfolios using historical data from the United States, the United Kingdom, and Germany. Analyzing the Sharpe ratio, the Omega measure, and the Sortino ratio as simple measures of value added, our historical simulation results provide strong evidence that all rebalancing strategies significantly outperform a buy-and-hold strategy. This outperformance is attributable to reduced risk, while there are no statistical differences in returns between rebalancing and buy-and-hold. Therefore, we conclude that it is a risk management argument, which justifies the widespread use of rebalancing in investment practice: The primary objective of any rebalancing strategy is the reduction of risk relative to a given asset allocation.

Keywords: rebalancing, bootstrap, performance measurement, statistical inference, stock-bond portfolio

JEL Classification: G11

Suggested Citation

Dichtl, Hubert and Drobetz, Wolfgang and Wambach, Martin, Testing Rebalancing Strategies for Stock-Bond Portfolios: Where Is the Value Added of Rebalancing? (August 29, 2012). 2012 European Financial Management Symposium on Asset Management ; 2012 Kölner Finanzmarktkolloquium on Asset Management. Available at SSRN: https://ssrn.com/abstract=1927764 or http://dx.doi.org/10.2139/ssrn.1927764

Hubert Dichtl

dichtl research & consulting GmbH ( email )

Am Bahnhof 7
65812 Bad Soden am Taunus
Germany

HOME PAGE: http://www.dichtl-rc.de

Wolfgang Drobetz (Contact Author)

Hamburg University ( email )

Moorweidenstrasse 18
Hamburg, 20148
Germany

Martin Wambach

University of Hamburg ( email )

Von-Melle-Park 5
Hamburg, 20146
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
418
Abstract Views
2,313
rank
68,600
PlumX Metrics