A1252
Title: Institutional stock-bond portfolios rebalancing and financial stability
Authors: Souhila Siagh - Aix-Marseille University (France)
Christelle Lecourt - Aix-Marseille University (France)
Jean-Baptiste Hasse - Aix-Marseille University (France) [presenting]
Abstract: Rebalancing options are examined for long-term institutional investors. Specifically, risk-adjusted performances of different stock-bond portfolios between buy-and-hold, periodic and threshold rebalancing are estimated. Using the Norwegian Sovereign Wealth Fund (SWF) as a case study and an econometric approach based on a bootstrap test of Sharpe ratios difference, it is shown that the optimal rebalancing differs across economic and financial cycles. Furthermore, it is found that the optimal rebalancing is quarterly rebalancing except during recessions and crises when buy-and-hold is best, thus calling into question the hypothesis of the countercyclical behaviour of SWFs. The results are robust to alternative performance measures, asset allocations, investment horizons, non-normal returns, transaction costs and time sampling. Last, the findings promote the consideration for macro-prudential rules to improve the Santiago Principles and a specific monitoring framework targeted at the SWFs.
