Portfolio Rebalancing: A Stable Source of Alpha?

13 Pages Posted: 23 Jan 2013  

John Kiskiras

Independent

Andrea Nardon

Independent

Date Written: January 18, 2013

Abstract

In this work we verify that portfolio rebalancing can generate an excess return under certain market conditions. In line with existing measures, developed specifically to capture that alpha (Rebalancing Bonus), we show that high volatility as well as low correlation maximize the magnitude of the excess return. However, in contrast to previous works, we demonstrate that the actual driver and therefore sufficient condition for a Rebalancing Bonus is the presence of relative mean-reversion. All results in the present note are supported via numerical simulations and a case study on global equities.

Keywords: rebalancing bonus, mean-reversion, portfolio rebalancing

Suggested Citation

Kiskiras, John and Nardon, Andrea, Portfolio Rebalancing: A Stable Source of Alpha? (January 18, 2013). Available at SSRN: https://ssrn.com/abstract=2202736 or http://dx.doi.org/10.2139/ssrn.2202736

John Kiskiras

Independent ( email )

No Address Available

Andrea Nardon (Contact Author)

Independent ( email )

No Address Available

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