Too Much Rebalancing Is Not a Good Thing

13 Pages Posted: 20 Nov 2019

See all articles by Byran Taljaard

Byran Taljaard

University of Pretoria

Eben Mare

University of Pretoria

Date Written: July 14, 2019

Abstract

There is now an abundance of literature showing that the equal weighted portfolio outperforms the value weighted portfolio. However, this has led to claims that the act of rebalancing itself within an equal weight strategy is what leads to outperformance, whether or not individual security returns are mean-reverting. In this paper we show that you can achieve the same, if not better, returns than that of the equal weighted portfolio rebalanced monthly by rebalancing less than half of the time. This is achieved by considering only whether the diversification benefit is increasing or decreasing over some period of time.

Keywords: Stochastic Portfolio Theory; diversification; rebalancing frequency; optimal rebalancing; equal weight portfolio

JEL Classification: G11, G15, G17

Suggested Citation

Taljaard, Byran and Mare, Eben, Too Much Rebalancing Is Not a Good Thing (July 14, 2019). Available at SSRN: https://ssrn.com/abstract=3484337 or http://dx.doi.org/10.2139/ssrn.3484337

Byran Taljaard (Contact Author)

University of Pretoria ( email )

Physical Address Economic and Management Sciences
Pretoria, Gauteng 0002
South Africa

Eben Mare

University of Pretoria ( email )

Physical Address Economic and Management Sciences
Pretoria, Gauteng 0002
South Africa

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