Expected utility and the non-normal returns of common portfolio rebalancing strategies

Samuel Kyle Jones () and Joe Bert Stine
Additional contact information
Samuel Kyle Jones: Stephen F. Austin State University

Journal of Asset Management, 2010, vol. 10, issue 6, No 6, 406-419

Abstract: Abstract This study compares three common strategies: buy-hold, constant mix and constant proportion rebalancing separately for bull, bear and trendless markets using Monte Carlo simulation. These strategies are compared in terms of terminal wealth, risk and expected utility. Our results indicate that rankings of the strategies by general expected utility functions, defined across all moments of the distribution of terminal wealth, often differ from rankings by mean-variance statistics. As rebalancing can produce non-normal payoffs, relying purely on traditional mean-variance analysis may cause investors to select inappropriate rebalancing strategies.

Keywords: portfolio rebalancing; expected utility; Monte Carlo simulation (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1057/jam.2009.22 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:assmgt:v:10:y:2010:i:6:d:10.1057_jam.2009.22

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/41260

DOI: 10.1057/jam.2009.22

Access Statistics for this article

Journal of Asset Management is currently edited by Marielle de Jong and Dan diBartolomeo

More articles in Journal of Asset Management from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().