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

See all articles by Hubert Dichtl

Hubert Dichtl

dichtl research & consulting GmbH

Wolfgang Drobetz

Hamburg University

Martin Wambach

University of Hamburg

Date Written: February 4, 2014

Abstract

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

Dichtl, Hubert and Drobetz, Wolfgang and Wambach, Martin, Where is the Value Added of Rebalancing? A Systematic Comparison of Alternative Rebalancing Strategies (February 4, 2014). Available at SSRN: https://ssrn.com/abstract=2139915 or http://dx.doi.org/10.2139/ssrn.2139915

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

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