What Does Rebalancing Really Achieve?

Cuthbertson, Keith; Hayley, Simon; Motson, Nick; Nitzsche, Dirk

doi:10.1002/ijfe.1545

Cited by 7 publications

(5 citation statements)

References 52 publications

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“…Subsequent studies support these findings by concluding that rebalancing strategies enhance the Sharpe ratio of a portfolio (see, e.g., Harjoto and Jones 2006;Dichtl et al 2016). In contrast, Cuthbertson et al (2015) question the benefits of periodical rebalancing in presence of transaction costs and propose to rebalance not more than necessary to keep a portfolio's asset allocation adequately close to the target percentages over time. A detailed analysis of the role of transaction costs for rebalancing strategies is provided by Donohue and Yip (2003).…”

Section: Related Literaturementioning

confidence: 99%

Automated portfolio rebalancing: Automatic erosion of investment performance?

Horn

Oehler

2020

J Asset Manag

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Robo-advisers enable investors to establish an automated rebalancing strategy for a portfolio usually consisting of stocks and bonds. Since households’ portfolios additionally include further frequently tradable assets like real estate funds, articles of great value and cash(-equivalents), we analyze whether households would benefit from a service that automatically rebalances a portfolio which additionally includes the latter assets. In contrast to previous studies, this paper relies on real-world household portfolios, which are derived from the German central bank’s (Deutsche Bundesbank) Panel on Household Finances (PHF)-Survey. We compute the portfolio performance increase/decrease that households would have achieved by employing rebalancing strategies instead of a buy-and-hold strategy in the period from September 2010 to July 2015 and analyze whether subsamples of households with certain sociodemographic and socioeconomic characteristics would have benefited more from portfolio rebalancing than other household subsamples. The empirical analysis shows that the analyzed German households would not have benefited from an automated rebalancing service and that no subgroup of households would have significantly outperformed another subgroup in the presence of rebalancing strategies.

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Section: Related Literaturementioning

confidence: 99%

Automated portfolio rebalancing: Automatic erosion of investment performance?

Horn

Oehler

2020

J Asset Manag

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“…In this scenario, after capital has been invested, no interim transactions take place until the account is closed, regardless of market fluctuations (Dichtl et al, 2016). This procedure is also known as the buy‐and‐hold approach (Cuthbertson et al, 2016). As a second approach, we investigate how the results change when all the robo‐managers use the most frequently observed procedure of threshold‐based rebalancing with a limit value of 10%.…”

Section: Results Of the Econometric Studymentioning

confidence: 99%

Automated investment management: Comparing the design and performance of international robo‐managers

Helms

Hölscher

Nelde

2021

Euro Fin Management

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Robo‐managers offer automated asset management; however, their overall performance is highly debated. We analyze 15 robo‐managers from Germany, the United States and the United Kingdom by conducting a comprehensive qualitative and quantitative study. The qualitative comparison shows considerable differences between the various robo‐managers, not only across but also within countries. The quantitative evaluation utilizes different measures to evaluate the performance of the robo‐manager sample. Our results indicate that each country has one particularly favourable robo‐manager. Furthermore, we find that the costs and characteristics of rebalancing measures have only a small effect on performance.

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“…In general, the results indicated that while rebalancing reduces volatility and momentum effects, the buyand-hold strategy outperformed them due to the relatively higher returns offered by stocks compared to the risk-free asset. Cuthbertson et al (2016) studied the effects of portfolio rebalancing on their returns and risks. The authors aimed to identify the misleading claims associated with rebalanced strategies and demonstrated, through theoretical analysis and simulations, that the apparent advantages of rebalanced strategies over infinite time horizons do not accurately reflect their performance over finite time horizons.…”

Section: Related Workmentioning

confidence: 99%

Portfolio Optimization for the Indian Stock Market

Sen¹,

Dutta²

2022

Encyclopedia of Data Science and Machine Learning

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Portfolio optimization has been an area of research that has attracted a lot of attention from researchers and financial analysts. Designing an optimum portfolio is a complex task since it not only involves accurate forecasting of future stock returns and risks but also needs to optimize them. This article presents a systematic approach to portfolio design using two risk optimization approaches, the hierarchical risk parity algorithm and the hierarchical equal risk contribution algorithm on seven critical sectors and the NIFTY 50 stocks listed in the National Stock Exchange of India of the Indian stock market. The portfolios are built following the two approaches on historical stock prices from Jan 1, 2016 to Dec 31, 2020. The portfolio performances are evaluated on the test data from Jan 1, 2021 to Nov 1, 2021. The backtesting results of the portfolios indicate that the performance of the HRP portfolio is superior to that of the HERC portfolio on both training and the test data for the majority of the sectors studied in this work.

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What Does Rebalancing Really Achieve?

Abstract: This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent

Cited by 7 publications

References 52 publications

Automated portfolio rebalancing: Automatic erosion of investment performance?

Automated portfolio rebalancing: Automatic erosion of investment performance?

Automated investment management: Comparing the design and performance of international robo‐managers

Portfolio Optimization for the Indian Stock Market

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