Abstract
We consider returns from rebalanced and buy and hold portfolios consisting of the same stocks. Theoretical properties are derived using Jensen's inequality and the Holder's Defect Formula. Simulations are used to confirm theory and to investigate ambiguous cases where theory is silent. Rebalancing generally increases the Sharpe Ratios and decreases total return volatility. Buy and hold produces greater expected return. Results are more opaque with respect to expected geometric means. Our empirical tests are based on portfolios composed of the risk-free asset and market valued weighted CRSP total returns. While rebalancing reduces volatility, these tests largely favor the buy and hold strategy due to the high relative returns of the index vis-a-vis the risk-free asset.
Published Version
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.
