Portfolio Rebalancing / by Edward E. Qian.

Includes bibliographical references and index.

TABLE OF CONTENTS -- Preface -- 1. Introduction -- 1.1 Risk Management -- 1.2 Rebalancing Alpha -- 1.3 Diversification Return, Volatility Effect -- 1.4 Serial Correlation and Rebalancing Alpha -- 1.5 New Topics in Portfolio Rebalancing -- 1.6 Outline of the Book -- 2. A Brief Review of Portfolio Theory -- 2.1 Arithmetic and Geometric Means -- 2.2 Return Volatilities -- 2.3 Relationships between Arithmetic and Geometric Means -- 2.4 Portfolio Return and Volatility -- 2.5 Serial Correlation and Volatility of Multi-Period Returns -- 3. Portfolio Rebalancing -- 3.1 Simple Examples -- 3.2 Rebalancing Long-Only Portfolios -- 3.3 Rebalancing Long-Short Portfolios -- 3.4 Rebalancing Alpha -- 4. Volatility Effect and Return Effect -- 4.1 Definitions of Two Effects -- 4.2 Positive Return Effect of Long-Only Portfolios -- 4.3 Positive Volatility Effect of Long-Only Portfolios -- 4.4 Cases of Positive and Negative Rebalancing Alphas -- 4.5 Two-Asset Long-Short Portfolios -- 5. Analysis of Volatility Effect -- 5.1"Diversification Return" -- 5.2 Maximizing "Diversification Return" -- 5.3 Diversification Returns of Long-Short Portfolios -- 6. Analysis of Return Effect -- 6.1 Return Effect of Long-Only Portfolios -- 6.2 The Impact of Cross-Sectional Serial Correlations on Return Effect -- 6.3 Approximating Return Effects of Long-Short Portfolios -- 7. Analysis of Rebalancing Alpha -- 7.1 Rebalancing Alpha of Two-Asset Portfolios -- 7.2 Rebalancing Alpha of General Portfolios -- 8. Asset Allocation Portfolios -- 8.1 Traditional 60/40 portfolios -- 8.2 Risk Parity portfolios -- 9. ASSET CLASS PORTFOLIOS -- 9.1 Stock portfolios -- 9.2 Bond portfolios -- 9.3 Commodity portfolios -- 10. Rebalancing Alpha and Mean Reversion -- 10.1 Two-Asset Two-Period Case -- 10.2 Multiple-Asset Two-Period Case -- 10.3 Two-Asset Three-Period Case -- 10.4 Multiple-Asset Three-Period Case -- 10.5 The General Case -- 10.6 Incomplete Rebalance -- 11. Risk and Return of Rebalancing Effects -- 11.1 Terminal Wealth -- 11.2 Expected Terminal Wealth -- 11.3 Variance of Terminal Wealth -- 11.4 Comparison of Two Variances -- 11.5 A General Two-Asset Case -- 11.6 The Impact of Serial Correlations -- 11.7 Terminal Wealth of Long-Short Portfolio -- 12. Threshold Rebalancing -- 12.1 Return dispersion or weight dispersion as a threshold -- 12.2 Numerical simulation of threshold rebalancing.

The goal of Portfolio Rebalancing is to provide mathematical and empirical analysis of the effects of portfolio rebalancing on portfolio returns and risks. The mathematical analysis answers the question of when and why fixed-weight portfolios might outperform buy-and-hold portfolios based on volatilities and returns. The empirical analysis, aided by mathematical insights, will examine the effects of portfolio rebalancing in capital markets for asset allocation portfolios and portfolios of stocks, bonds, and commodities.

Also available in print format.