investor's utility in portfolio rebalancing strategies

Subject Areas : Financial Knowledge of Securities Analysis

Alireza Validi ¹ (MA. Of Financial Engineering, Kharazmi University, Tehran, Iran.)
M. Ebrahim Aghababaei ² (Assistant Professor of Financial Management, Kharazmi University, Tehran, Iran.)

Received: 2017-04-15 Accepted : 2017-06-22 Published : 2019-01-21

Keywords: Portfolio Rebalancing, Rebalancing Frequency, Log-optimal Approach, Hybrid Rebalancing Strategy,

Abstract :

Choosing an appropriate strategy for portfolio rebalancing is a crucial matter in today's financial markets with logarithmic and high frequency transactions. In log-optimal approach named also active strategy, portfolio rebalancing is a continuous time process and the optimality of such strategy is assured only for very long-term investment horizons. But continuous-time rebalancing is impractical and portfolios have finite horizon usually. In this article we will introduce another strategy with less rebalancing frequency to attain log-optimal utility at least, because of costly and infeasibility of continuous rebalancing for investors. Then we will implement these strategies on a portfolio consist of several Tehran exchange stocks. The results showed that «Hybrid Rebalancing Strategy» offers more utility for investors in comparison to other strategies.

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