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Stock Portfolio Periodic Rebalancing vs. Buy-and-Hold

June 3, 2021 • Posted in Volatility Effects

Is periodic rebalancing of a stock portfolio advantageous? In his May 2021 paper entitled “Does Volatility Harvesting Really Work?”, Magnus Pedersen compares performances of periodic rebalancing versus no rebalancing (buy-and-hold) for thousands of randomly constructed and initially equal-weighted portfolios of U.S. stocks. He tries different numbers of holdings, different start/end dates and different rebalancing intervals (daily, weekly, monthly, annually). He looks at arithmetic average returns, geometric average returns, simplified Sharpe ratios¬†and maximum drawdowns of competing portfolios. Using daily stock-returns for over 900 large and liquid U.S. stocks during January 2007 through early 2021, he finds that: (more…)

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