Automated portfolio rebalancing: Automatic erosion of investment performance?
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ORIGINAL ARTICLE
Automated portfolio rebalancing: Automatic erosion of investment performance? Matthias Horn1 · Andreas Oehler2 Revised: 24 August 2020 / Published online: 22 September 2020 © The Author(s) 2020
Abstract Robo-advisers enable investors to establish an automated rebalancing strategy for a portfolio usually consisting of stocks and bonds. Since households’ portfolios additionally include further frequently tradable assets like real estate funds, articles of great value and cash(-equivalents), we analyze whether households would benefit from a service that automatically rebalances a portfolio which additionally includes the latter assets. In contrast to previous studies, this paper relies on realworld household portfolios, which are derived from the German central bank’s (Deutsche Bundesbank) Panel on Household Finances (PHF)-Survey. We compute the portfolio performance increase/decrease that households would have achieved by employing rebalancing strategies instead of a buy-and-hold strategy in the period from September 2010 to July 2015 and analyze whether subsamples of households with certain sociodemographic and socioeconomic characteristics would have benefited more from portfolio rebalancing than other household subsamples. The empirical analysis shows that the analyzed German households would not have benefited from an automated rebalancing service and that no subgroup of households would have significantly outperformed another subgroup in the presence of rebalancing strategies. Keywords Household finance · Robo-advisor · Portfolio rebalancing · Fixed-weight asset strategy JEL Classification D14 · G11 · G23 · G41 This paper uses data from the Deutsche Bundesbank Panel on Household Finances. The results published and the related observations and analysis may not correspond to results or analysis of the data producers. We would like to thank Marielle de Jong (the editor) and an anonymous referee for valuable comments and Deutsche Bundesbank, especially Martin Eisele, for providing the dataset of the PHF-Survey. In addition, we would like to thank Stefan Wendt from Reykjavik University in Reykjavik, Iceland, participants of the 30th European Conference on Operational Research, Dublin, Ireland, participants of the 2019 FMA European Conference, Glasgow, Scotland, participants of the 2019 Annual Meeting Academy of Financial Services, Minneapolis, participants of the 88th International Atlantic Economic Conference, Miami, participants of the 82nd Annual Business Researcher Conference, Frankfurt, Germany, and seminar participants at Bamberg University in Bamberg, Germany, for helpful comments and suggestions. All remaining errors are our own. Electronic supplementary material The online version of this article (https://doi.org/10.1057/s41260-020-00183-0) contains supplementary material, which is available to authorized users. * Matthias Horn matthias.horn@uni‑bamberg.de 1
Introduction Rebalancing investments, i.e., keeping the relative portfolio weights of different asset classes with calenda
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