Jump to ContentJump to Main Navigation
Portfolio Theory and Management$
Users without a subscription are not able to see the full content.

H. Kent Baker and Greg Filbeck

Print publication date: 2013

Print ISBN-13: 9780199829699

Published to Oxford Scholarship Online: May 2013

DOI: 10.1093/acprof:oso/9780199829699.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (www.oxfordscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 19 January 2020

Trading Strategies, Portfolio Monitoring, and Rebalancing

Trading Strategies, Portfolio Monitoring, and Rebalancing

Chapter:
(p.383) 17 Trading Strategies, Portfolio Monitoring, and Rebalancing
Source:
Portfolio Theory and Management
Author(s):

Riccardo Cesari

Massimiliano Marzo

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199829699.003.0017

Trading strategies translate goals and constraints of asset management into dynamic, intertemporal, and coherent portfolio decisions. Under special assumptions, myopic portfolio policies are shown to be optimal and constant over time. In general, however, both optimal theoretical portfolios and current portfolio positions are subject to random movements so that periodic monitoring and rebalancing are necessary. Transaction and monitoring costs create a tradeoff between the cost of not being at the optimal allocation (tracking error) and the cost of swapping the current portfolio for the optimal one. Optimal rebalancing results in the replacement of the optimal allocation with a no-trade region delimited by rebalance boundaries. The factors influencing the boundaries and the rebalancing decisions can be analytically and numerically explained. Popular rebalancing rules imply a substantial amount of excess trading costs, but they can generate positive net returns in the case of mean-reverting market regimes.

Keywords:   trading strategies, asset management, intertemporal, monitoring, rebalancing, trading costs

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .