Developing a dynamic portfolio selection model with a self-adjusted rebalancing method

Jongbin Jung and Seongmoon Kim ()
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Jongbin Jung: Yonsei University
Seongmoon Kim: Yonsei University

Journal of the Operational Research Society, 2017, vol. 68, issue 7, 766-779

Abstract: Abstract In this paper, we propose a comprehensive investment strategy for not only selecting but also maintaining an investment portfolio that takes into account changing market conditions. First, we implement a dynamic portfolio selection model (DPSM) that uses a time-varying investment target according to market forecasts. We then develop a self-adjusted rebalancing (SAR) method to assess the portfolio’s relevance to current market conditions, and further identify the appropriate timing for rebalancing the portfolio. We then integrate the DPSM and SAR into a comprehensive investment strategy, and develop an adaptive learning heuristic for determining the parameter of the proposed investment strategy. We further evaluate the performance of the proposed investment strategy by simulating investments with historical stock return data from different markets around the world, across a period of 10 years. The SAR Portfolio, maintained according to the proposed investment strategy, showed superior performance compared with benchmarks in each of the target markets.

Keywords: Dynamic portfolio selection model; Self-adjusted rebalancing; Adaptive learning heuristics; Tracking signal; Non-linear programming (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1057/jors.2016.21

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