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Is portfolio rebalancing good for investors?
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Abstract |
Abstract
Our study seeks to examine the value of various portfolio rebalancing strategies using historical data for 20-years period for U.S. which includes business cycles - expansion and contractions, our study is based on hypothetical of portfolio asset allocations - 60/40 (stock fund), 50/50 (balanced fund), and 40/60 (bond fund). We combine both periodical rebalancing (daily, monthly, quarterly, semi-annually, annually, 2nd-yearly, 3rd-yearly, 4th-yearly, and 5th-yearly) and threshold rebalancing (0%, 5%, 10%, 15%, 20%, 25% and 30%) in our study. We investigate for the whole 20-years period contraction and expansion periods. In the 20-years period, our findings show that: a) rebalancing strategies improve return of a portfolio as compared with buy-and-hold strategy, b) the rebalancing strategies results is slightly lower risk than buy-and-hold strategy, c) periodic rebalancing leads to better risk-return outcome than buy-and-hold strategy, and d) portfolio rebalancing based on certain threshold choice perform better buy-and-hold strategy in the long run. Based on the results of the study, we recommend the optimal rebalancing strategy for investors to be threshold rebalancing 25 percent/annually or 30 percent/annually. In addition, our results also indicate that the returns of rebalancing strategies during business cycles perform better than buy-and-hold strategy. However, the difference in portfolio performance of various rebalancing strategies vis-~\u2020-vis buy and hold strategy is not substantial to warrant a definitive recommendation of a particular portfolio rebalancing strategy. --Leaf iii. |
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DOI |
DOI
https://doi.org/10.24124/2014/bpgub1013
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Degree granting institution (dgg): University of Northern British Columbia
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Library of Congress Classification |
Library of Congress Classification
HG4529.5 .L36 2014
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Number of pages in document: 115
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ISBN |
ISBN
978-1-321-14952-4
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Use and Reproduction |
Use and Reproduction
Copyright retained by the author.
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Rights Statement
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unbc_16883.pdf5.58 MB
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English
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Is portfolio rebalancing good for investors?
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