Rebalancing for Long-Term Investors

Research output: Working paperOther research output

Abstract

In this study we show that the rebalance frequency of a multi-asset portfolio has only limited impact on the utility of a long-term passive investor. Although continuous rebalancing is optimal, the loss of a suboptimal strategy corresponds to up to only 30 basis points of the initial wealth of the investor, assuming market returns are unpredictable and transaction costs can be ignored. Our results suggest that reducing transaction costs clearly outweighs the benefit of frequent rebalancing. When we study a setting where asset returns are predictable, we find that a long-term investor that ignores this predictability underestimates the benefit of less frequent rebalancing. In this setting, limiting the frequency to at least once every quarter results in significant higher utility, even without transaction costs.
Original languageEnglish
Place of PublicationTilburg
PublisherNETSPAR
Number of pages42
DOIs
Publication statusPublished - 2017

Publication series

NameNetspar Discussion Paper
Volume05/2017-013

Fingerprint

Investors
Transaction costs
Rebalancing
Predictability
Wealth
Market returns
Asset returns
Assets

Keywords

  • rebalancing
  • multi-asset
  • long term
  • passive

Cite this

Driessen, J., & Kuiper, I. T. J. (2017). Rebalancing for Long-Term Investors. (Netspar Discussion Paper; Vol. 05/2017-013). Tilburg: NETSPAR. https://doi.org/10.2139/ssrn.2976225
Driessen, Joost ; Kuiper, I.T.J. / Rebalancing for Long-Term Investors. Tilburg : NETSPAR, 2017. (Netspar Discussion Paper).
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Driessen, J & Kuiper, ITJ 2017 'Rebalancing for Long-Term Investors' Netspar Discussion Paper, vol. 05/2017-013, NETSPAR, Tilburg. https://doi.org/10.2139/ssrn.2976225

Rebalancing for Long-Term Investors. / Driessen, Joost; Kuiper, I.T.J.

Tilburg : NETSPAR, 2017. (Netspar Discussion Paper; Vol. 05/2017-013).

Research output: Working paperOther research output

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