Abstract
There is no doubt rebalancing can increase portfolio value, but the drivers of this value are widely misunderstood, according to the research behind The Limitations of Diversification Return, in the Summer 2014 issue of The Journal of Portfolio Management. The value of rebalancing does not come from reduced volatility or increased diversification, as some prior research maintains, co-authors Don Chambers and John Zdanowicz explain. In this Practical Applications report, Chambers-the Walter E. Hanson KPMG Chair in Finance at Lafayette College, tells us why rebalancing increases portfolio value. Don’t bother with diversification return; rethink your view of portfolio rebalancing; mean reversion is the driver. These are the practical applications he discusses in this report.
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