Institutional stock-bond portfolios rebalancing and financial stability: Norway as a case study

Jean-Baptiste Hasse, Christelle Lecourt and Souhila Siagh
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Jean-Baptiste Hasse: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, UCL - Université Catholique de Louvain = Catholic University of Louvain
Christelle Lecourt: AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique
Souhila Siagh: CERGAM - Centre d'Études et de Recherche en Gestion d'Aix-Marseille - AMU - Aix Marseille Université - UTLN - Université de Toulon

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Abstract: In this paper, we examine rebalancing strategies for long-term institutional investors. Specifically, we test the difference in risk-adjusted performance between stock-bond portfolios based on buy-and-hold, periodic and threshold rebalancing strategies. Using the Norwegian Sovereign Wealth Fund (SWF) as a benchmark and an econometric approach based on a bootstrap test of Sharpe ratio differences, we show that the optimal rebalancing differs across economic and financial cycles. Furthermore, we find that the optimal strategy is periodic rebalancing except during recessions and crises when the buy-and-hold approach is best, thus calling into question the hypothesis of the countercyclical behaviour of SWFs. Our results are robust to alternative performance measures, asset allocations, investment horizons, rebalancing rules, nonnormal and noniid returns, transaction costs and time sampling. Finally, our findings promote the consideration of macroprudential rules to improve the Santiago Principles and a specific monitoring framework targeted at SWFs.

Keywords: Portfolio rebalancing; Financial stability; boobstrap test; Institutional investors (search for similar items in EconPapers)
Date: 2025
Note: View the original document on HAL open archive server: https://hal.science/hal-05069105v1
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Published in Applied Economics, In press, ⟨10.1080/00036846.2025.2486779⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05069105

DOI: 10.1080/00036846.2025.2486779

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