Empirical Analysis of Rebalancing Strategies
Abstract
We review the theoretical foundation for rebalancing regimes and look at the impact of rebalancing on the portfolio’s risk and return based on historical return data from 1970 to 2011. We compare both different calendar based rebalancing regimes and different threshold based regimes with the performance of a drifting mix portfolio. Towards the end of the note we focus on the specific design of a rebalancing regime. In particular, we look at a trigger based regime and examine different designs of the threshold level, persistence requirement and implementation rule.
Description
This paper was part of the NBIM memo ”On rebalancing” (February 2012).
Publisher
Norges Bank Investment ManagementSeries
Discussion note;3/2012Diskusjonsnotat;3/2012