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Does constant asset allocation dominate buy-and-hold?

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  • Levy, Moshe
Abstract
There is a widespread perception that it is optimal to keep portfolio weights constant over time, and that the optimal rebalancing frequency is just a question of the transaction cost. This is not generally true. We show that buy-and-hold is not stochastically dominated by any constant allocation strategy. Thus, there are some risk averters, including those requiring a minimal subsistence level, who are better-off with a buy-and-hold strategy when returns are i.i.d, even when rebalancing is free. Perhaps surprisingly, the longer the investment horizon, the larger the set of investors who prefer buy-and-hold over constant allocation.

Suggested Citation

  • Levy, Moshe, 2024. "Does constant asset allocation dominate buy-and-hold?," Finance Research Letters, Elsevier, vol. 62(PB).
    • Handle: RePEc:eee:finlet:v:62:y:2024:i:pb:s154461232400237x
    DOI: 10.1016/j.frl.2024.105207
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    References listed on IDEAS

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