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Financial Markets and Portfolio Management

, Volume 28, Issue 3, pp 209–231 | Cite as

Where is the value added of rebalancing? A systematic comparison of alternative rebalancing strategies

  • Hubert Dichtl
  • Wolfgang Drobetz
  • Martin Wambach
Article

Abstract

This study compares the performance of different rebalancing strategies under realistic market conditions by reporting statistical significance levels. Our analysis is based on historical data from the United States, the United Kingdom, and Germany and comprises three different classes of rebalancing (periodic, threshold, and range rebalancing). Despite cross-country differences, our history-based simulation results show that all rebalancing strategies outperform a buy-and-hold strategy in terms of Sharpe ratios, Sortino ratios, and Omega measures. The differences in risk-adjusted performance are not only statistically significant, but also economically relevant. However, the choice of a particular rebalancing strategy is of only minor economic importance.

Keywords

Rebalancing Stock-bond portfolio Bootstrap Statistical inference 

JEL Classification

G11 

Notes

Acknowledgments

We appreciate helpful comments from Wolfgang Bessler, Martijn Cremers, Javier Estrada, Alexander Kempf, Aymen Karoui, Lawrence Kryzanowski, Philipp Kurmann, Christoph Meinerding, Rainer Schlittgen, Markus Schmid (the editor), Florian Sonnenburg, and Heinz Zimmermann as well as from participants at the 2011 joint conference of the German Classification Society (GfKl) and the German Association for Pattern Recognition (DAGM) in Frankfurt am Main, the 2012 Midwest Finance Association (MFA) Conference in New Orleans, the 2012 European Financial Management (EFMA) Symposium on Asset Management in Hamburg, the 2012 Finanzmarktkolloquium on Asset Management in Cologne, the 2013 Financial Management Association (FMA Europe) Conference in Luxembourg, the 2013 European Financial Management (EFMA) Conference in Reading, and the 2013 Financial Management Association (FMA) Conference in Chicago.

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Copyright information

© Swiss Society for Financial Market Research 2014

Authors and Affiliations

  • Hubert Dichtl
    • 1
  • Wolfgang Drobetz
    • 2
  • Martin Wambach
    • 2
  1. 1.alpha portfolio advisors GmbHBad Soden am TaunusGermany
  2. 2.University of HamburgHamburgGermany

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