Analysis of the rebalancing frequency in log-optimal portfolio selection

Abstract: In a dynamic investment situation, the right timing of portfolio revisions and adjustments is essential to sustain long-term growth. A high rebalancing frequency reduces the portfolio performance in the presence of transaction costs, whereas a low rebalancing frequency entails a static investment strategy that hardly reacts to changing market conditions. This article studies a family of portfolio problems in a Black-Scholes type economy which depend parametrically on the rebalancing frequency. As an objective criterion we use log-utility, which has strong theoretical appeal and represents a natural choice if the primary goal is long-term performance. We argue that continuous rebalancing only slightly outperforms discrete rebalancing if there are no transaction costs and if the rebalancing intervals are shorter than about one year. Our analysis also reveals that diversification has a dual effect on the mean and variance of the portfolio growth rate as well as on their sensitivities

Standort
Deutsche Nationalbibliothek Frankfurt am Main
Umfang
Online-Ressource
Sprache
Englisch
Anmerkungen
Postprint
begutachtet (peer reviewed)
In: Quantitative Finance ; 10 (2010) 2 ; 221-234

Klassifikation
Wirtschaft

Ereignis
Veröffentlichung
(wo)
Mannheim
(wann)
2010
Urheber
Kuhn, Daniel
Luenberger, David G.

DOI
10.1080/14697680802629400
URN
urn:nbn:de:0168-ssoar-221449
Rechteinformation
Open Access unbekannt; Open Access; Der Zugriff auf das Objekt ist unbeschränkt möglich.
Letzte Aktualisierung
25.03.2025, 13:57 MEZ

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Beteiligte

  • Kuhn, Daniel
  • Luenberger, David G.

Entstanden

  • 2010

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