Abstract
Exact solutions are presented for the mean, variance, and skewness of compound portfolio returns, with and without periodic rebalancing, in a setting where single-period returns are symmetric. More frequent rebalancing reduces portfolio volatility and is unambiguously preferred by mean-variance investors in the absence of investment skill. However, more frequent rebalancing and broader diversification both reduce compound return skewness. An investor with a sufficiently strong taste for skewness may prefer a more concentrated portfolio that is rebalanced less frequently, even in the absence of investment skill, particularly if the investment horizon is long.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
