Where is the Value Added of Rebalancing? A Systematic Comparison of Alternative Rebalancing Strategies
40 Pages Posted: 1 Sep 2012 Last revised: 11 Aug 2015
Date Written: February 4, 2014
This study compares the performance of different rebalancing strategies under realistic market conditions by reporting statistical significance levels. Our analysis is based on historical data from the United States, the United Kingdom, and Germany and comprises three different classes of rebalancing (periodic, threshold, and range rebalancing). Despite cross-country differences, our history-based simulation results show that all rebalancing strategies outperform a buy-and-hold strategy in terms of Sharpe ratios, Sortino ratios, and Omega measures. The differences in risk-adjusted performance are not only statistically significant, but also economically relevant. However, the choice of a particular rebalancing strategy is of only minor economic importance.
Keywords: optimal rebalancing, stock-bond portfolio, bootstrap, statistical inference
JEL Classification: G11
Suggested Citation: Suggested Citation