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Author: Hyperborea Date: 3/1/02 2:20 AM Number: 33897
Two easy to access articles are in William Bernstein's newsletter, Efficient Frontier, in the September 1997 issue - Mean Reversion and You and in the January 2000 issue - Case Studies in Rebalancing. From the second of the two Bernstein writes:

"This is a fairly tedious table, but cursory examination shows that for almost all periods studied there is a monotonous improvement as one increases rebalancing period, except that there seems to be little difference between annual and quarterly rebalancing. (And for those of you who are hard core stat nuts, except for annual/quarterly pairwise t tests between all of the periods are highly significant.) The reason for this is fairly obvious. Asset class returns are not a perfect random walk. If they were, then there would be no profit to rebalancing. After all, rebalancing amounts to a bet that last year's above/below average return will reverse next year. If this is not the case, then there is no sense in rebalancing. There is overwhelming evidence that there is short-term persistence in asset class returns, so it is a good idea not to be too hasty pulling the trigger."

Very interesting - thanks. I had never thought of rebalancing like this. I highly respect Bernstein's work.

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