Buy-and-Hold vs. Constantly Rebalanced Portfolios: A Theoretical Comparison
Journal of Asset Management, Volume 16, Issue 2 (March 2015)
Posted: 3 Dec 2014 Last revised: 20 Jan 2016
Date Written: December 2, 2014
This paper compares the return distributions of the Buy-and-Hold and the Constantly Rebalanced portfolios over a fixed time window. The former has always the greater expected return, while at the same time it has a provably larger larger variance in at least two cases: when the underlying assets have equal expected returns or when the portfolio weights are mean-variance optimal.
Keywords: rebalancing gains, buy and hold, geometric Brownian motion
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