Institutional Stock-Bond Portfolios Rebalancing and Financial Stability

Jean-Baptiste Hasse, Christelle Lecourt () and Souhila Siagh ()
Additional contact information
Christelle Lecourt: Aix-Marseille Univ., CNRS, AMSE, Marseille, France, https://www.amse-aixmarseille.fr/en/members/lecourt
Souhila Siagh: Aix-Marseille Univ., CERGAM, Marseille, France, https://college-doctoral.univ-amu.fr/inscrit/10224

No 2322, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: In this paper, we examine rebalancing strategies for long-term institutional investors. Specifically, we test the difference in risk-adjusted performances 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 ratios difference, 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 behavior of SWFs. Our results are robust to alternative performance measures, asset allocations, investment horizons, rebalancing rule, nonnormal and non-iid 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; Bootstrap Test; Institutional Investors (search for similar items in EconPapers)
Pages: 38 pages
Date: 2023-11
New Economics Papers: this item is included in nep-eec and nep-fmk
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