Affiliation:
1. University of Gothenburg , Sweden
Abstract
Abstract
The distribution of long-run compound returns to portfolio strategies is greatly affected by periodic rebalancing. Over time, buy-and-hold portfolios gradually lose diversification as extreme long-run skewness in individual stock returns leads to increasingly concentrated holdings. For long investment horizons, small rebalanced portfolios holding only a fraction of all stocks therefore achieve better diversification than much larger marketwide buy-and-hold portfolios. Consequently, over long horizons, rebalanced portfolios tend to outperform buy-and-hold portfolios, and risk-averse investors prefer the former. Empirical results strongly support the theoretical predictions and add further evidence to the strong empirical performance of (small) equal-weighted portfolios. (JEL G10, G11)
Received April 30, 2021; editorial decision September 18, 2022 by Editor Hui Chen. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.
Funder
Marianne and Marcus Wallenberg Foundation
Publisher
Oxford University Press (OUP)
Subject
Economics and Econometrics,Finance
Cited by
1 articles.
订阅此论文施引文献
订阅此论文施引文献,注册后可以免费订阅5篇论文的施引文献,订阅后可以查看论文全部施引文献