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The intention of the empirics is to contribute to the general understanding of investor responses to market price shocks. The authors review assumptions about investor behavior in response to price shocks and investigate alternative rebalancing heuristics.

The authors use market data over 40 years to define market shocks. Portfolio rebalancing implements constrained Markowitz mean-variance (MV) heuristics.

Momentum rebalancing in portfolio management outperforms contrarian rebalancing in the study interval. Sensitivity analysis by decade, sector constraints and proportion of security holdings bought or sold continue to support momentum rebalancing.

The results are consistent with under-responding to price shocks at consensus levels in financial markets. The theoretical background provides a basis for experimental lab studies of shocks of different magnitudes under conditions in which participants have information on the levels of other participants and a condition in which they can only observe their previous estimates.

Managing portfolios in the face of price disturbances of different magnitudes is informed by empirical studies and their implications for investor behavior.

This is the first study the authors can locate that uses market data with alternative rebalancing heuristics to estimate price returns from the respective heuristics over a time interval of 40 years. The authors support the results with sensitivity estimates and consider implications for the underlying agent heuristics in light of background studies.

This study aims to quantify the cost of rebalancing Sharīʿah-compliant indexes, both economically and statistically.

An empirical approach is employed where the rebalanced Sharīʿah-compliant index is calculated numerous times with different lags in rebalancing, and the number of stocks and their cost across time are determined in order to identify the optimal rebalancing frequency.

This paper finds that annual Sharīʿah rebalancing does not lead to significant differences in portfolio returns, even though it does bring some advantages in cumulative wealth starting from the third year onwards and brings about better risk-return characteristics measured in terms of the Sharpe ratio. However, these advantages involve an average annual shifting between 30 and 60% of the portfolio market capitalization, which would be costly at any level of transaction costs.

A private investor may be better off holding a constant portfolio and only rebalancing in three-year intervals since this was shown to possess similar portfolio returns and cumulative wealth results. Any advantages of annual rebalancing in terms of risk-return characteristics may be offset by transaction costs of rebalancing. Sharīʿah scholars and practitioners are to determine when the correct time for rebalancing really is, taking into consideration the cost of rebalancing vis-à-vis the advantages in cumulative wealth and risk-return characteristics of the portfolio.

Predictions that Islamic indexes will perform well during financial crises, such as the COVID-19 pandemic, miss the cost of frequent rebalancing. This paper addresses this issue in an empirical manner learning from the previous crisis in 2008.

Over the years a number of tactical, dynamic and strategic approaches for asset allocation have been developed to improve the objectivity of portfolio management. One of the most popular approaches is to annually rebalance a portfolio of six to ten assets classes back to an equal or fixed percentage. Most researchers agree that this is essentially a contrarian strategy. The purpose of this paper is to develop and evaluate an asset allocation methodology using a biasing factor that can implement a momentum strategy for investors who might prefer momentum investing.

Three portfolio strategies, buy and hold, equal rebalancing and bias factor rebalancing are compared using 20 years of performance data and a diversified set of eight asset classes. The biased approach is then tested using two years of data not included in the original analysis data.

This research demonstrates that there is a wide range of active rebalancing approaches that can easily implement either a momentum or a stronger contrarian strategy. In addition, the findings present considerable evidence that a partial or full biased momentum approach can result in improved portfolio performance with reduced risk over longer time periods.

The results for buy and hold show that the traditional equal rebalancing strategy may not be worth the extra effort required to implement it.

Even though the full momentum approaches are less diversified than the buy and hold or the equal rebalancing strategies, it resulted in superior risk-adjusted returns as measured by the Sharpe ratio.

This paper aims to model the asset portfolio rebalancing decisions of Australian households experiencing a severe life event shock.

The paper uses household longitudinal data from the Household, Income, and Labour Dynamics in Australia (HILDA) survey since 2001. The major life events are serious illness or injury, death of a spouse, job dismissal or redundancy and separation from a spouse. The asset classes are bank accounts, cash investments, equities, superannuation (private pensions), life insurance, trust funds, owner-occupied housing, investor housing, business assets, vehicles and collectibles. The authors use both static and dynamic Tobit models to assess the impact and duration of impact of the shocks.

Serious illness and injury, loss of employment, separation and spousal death cause households to rebalance portfolios in ways that can have detrimental effects on long-term wealth accumulation through poor market timing and the incurring of transaction costs.

The survey results are only available since 2001, and the wealth module from which the asset data are drawn is self-reported and not available every year.

Relevant to policymakers working on the ongoing retirement of the “baby boomer” generation and for financial planners guiding household investment decisions.

Most research on shocks to household wealth concern a narrower range of assets and only limited shocks. Also, this is one of the few studies to use a random effects model to allow for unspecified heterogeneity among households.

The recommendation of the analyst report is not only limited to a small number of ratings, but also biased toward a buy opinion with the absence of sell opinion. As an alternative to this, this paper aims to extract analysts' textual opinions embedded in the report body through text analysis and examine the profitability of investment strategies. Analyst opinion about a firm is measured by calculating the frequency of positive and negative words in the report text through the Korean sentiment lexicon for finance (KOSELF). To verify the usefulness of textual opinions, the author constructs a calendar-time based portfolios by the analysts' textual opinion variable of each stock. When opinion level is used, investment strategy has no significant hedged portfolio return. However, hedged portfolio constructed by opinion change shows significant return of 0.117% per day (2.57% per month). In addition, the hedged return increases to 0.163% per day (3.59% per month) when the opening price is used instead of closing price. This study show that the analysts’ opinion extracted from text analysis contains more detailed spectrum than recommendation and investment strategies using them give significant returns.

This paper aims to analyze the impact of transaction costs in portfolio optimization in Peru. The study aims to compare the transaction costs structure applied in Peru with respect to the ones applied in the USA, and over a few dimensions.

The paper opted for an empirical study analyzing the cost of rebalancing portfolios over a set period and dimensions. Stocks have been carefully selected using Bloomberg terminals, and portfolio designed then rebalanced using VBA programming. Over a few dimensions as type and number of stocks, holding period and trading strategy, the behavior of these different transaction costs has been compared. The analysis has been done for four different portfolios.

The paper provides empirical insights about how a retail investor actively trading in Peru can pay up to 14 times more in transaction costs than trading the same portfolio in the USA. These comparatively high transaction costs prevent retail investors to trade in the Peruvian stock market while fueling illiquidity to this market.

The paper deals with a limited amount of Peruvian stocks. Researchers are encouraged to test the proposition further, including other dimensions.

The paper includes implications for any retail investor that wants to invest in Peruvian stocks, giving an insight about how expensive it is to actively rebalance a portfolio in Peru.

This paper fulfils an identified need to study how much it costs to actively invest on the stock market in Peru.

This study examined the dynamic role of the Japanese property sector, particularly the real estate investment trusts (REITs), in mixed-asset portfolios of stocks and bonds, as well as office, retail, hotel and residential REITs.

Daily data were retrieved from 01 January 2008 to 31 December 2019. The sample time frame consisted of in-sample and out-of-sample periods. The dynamic conditional correlation-generalised autoregressive conditional heteroskedastic (DCC-GJRGARCH) model was deployed to obtain the forecast estimates of time-varying volatility of REITs and correlations with other assets. The estimates were employed to construct out-of-sample portfolios based on the three assets for daily investment. The five sets of portfolios with each individual property sector REITs, as well as a portfolio of stocks and bonds that served as a benchmark, were produced. The average utility for each set of portfolios was estimated and compared with the average utility of the benchmark portfolio. The average transaction cost (TC) for portfolio rebalancing was calculated as well.

The forecast of volatility estimates for each property sector revealed that each asset displayed a similar pattern with the differences in the volatility magnitude. Notably, hotel and retail REITs were more volatile than other property sector REITs. The property sector REITs exhibited a positive correlation with stocks but negatively linked with bonds. The results unveiled the diversification benefits of incorporating property sector REITs. The portfolio with property sector REITs had higher risk-adjusted returns and utility, compared to portfolio consisting of stocks and bonds. The benefits outweighed the TC for portfolio rebalancing.

This study highlights the importance of quantifying the conditional time-varying volatility and correlations of the property sector REITs with other asset returns, especially for investment decision, to select and include property sector REITs in mixed-asset portfolios. For fund managers seeking liquid assets in daily investment, this analysis suggests the inclusion of hotel and retail REITs to enhance REITs' portfolio performance.

This study is the first to investigate the dynamic characteristics of the volatility and correlation of each property sector REITs with other financial assets by employing the conditional framework that accounted for short- and long-run persistency in economic shocks. The reported outcomes shed light on the differences in the underlying properties that contribute to the variances in dynamic volatility of each sector REITs, as well as REITs' correlations with stocks and bonds. This application enables the authors to transmit the dynamics of variance-covariance matrix amongst each property sector REITs, stocks and bonds into asset allocation problem on a daily basis.

The purpose of this paper is to contrast three investment choices within the reach of individual investors: naive portfolios of Brazilian stocks; actively managed stock funds; and the Ibovespa index, which represents passive management as well as to offer insights on the performance of professional asset managers in this large emerging market.

Equally weighted portfolios contained between 5 and 30 stocks to keep transaction costs low. Stock selection used the Ibovespa constituents and considered value (dividend yield (DY) and price-to-book ratio), momentum (past returns), and liquidity, as well as the Sharpe ratio (SR) over the 2003-2012 period, rebalancing three times a year.

Cumulative returns of naive portfolios are large. They frequently outperform the index for all values of n. They also outperform stock funds, particularly when the invested amount exceeds US$25,000, due to transaction costs. Yet, expected out-of-sample SRs corrected for errors in estimates are very low, suggesting that one should not count on this historical performance in the future. Naive portfolios may simply be more exposed to additional value, size, and momentum risks. Results are sensitive to time period selection.

Naive portfolios may be attractive to individual investors in Brazil relative to stock funds, which seem to strive to keep volatility low and may be better when the investment amount is low. There may be merit for value or momentum stock selection strategies when forming small equally weighted portfolios.

The paper contrasts realistic stock investing alternatives for individuals, it provides a view of stock fund performance in Brazil, and offers practical implications that may be pertinent in other emerging stock markets.

Contrastar três opções de investimento ao alcance de investidores individuais: carteiras ingênuas de ações brasileiras; fundos de ações de gestão ativa; e o índice Ibovespa, que representa a gestão passiva. Oferecer informações sobre o desempenho de gestores de ativos profissionais neste grande mercado emergente.

As carteiras igualmente ponderadas continham entre 5 e 30 ações para manter os custos de transação baixos. A seleção de ações utilizou os componentes do Ibovespa e considerou o valor (rendimento de dividendos e relação preço/valor patrimonial), momentum (retornos passados) e liquidez, bem como o Índice de Sharpe no período 2003-2012, rebalanceando três vezes ao ano.

Os retornos acumulados de carteiras ingênuas são grandes. Eles frequentemente superam o índice para todos os valores de N. Eles também superam os fundos de ações, particularmente quando o montante investido excede US$ 25,000, devido aos custos de transação. Contudo, os Índices de Sharpe esperados fora de amostra corrigidos por erros nas estimativas são muito baixos, sugerindo que não se deve contar com este desempenho histórico no futuro. As carteiras ingênuas podem simplesmente estar mais expostas a fatores riscos adicionais, tal como os de valor, tamanho e momentum. Os resultados são sensíveis à seleção do período de tempo.

As carteiras ingênuas podem ser atrativas para os investidores individuais no Brasil em relação aos fundos de ações, que parecem se esforçar para manter a volatilidade baixa e podem ser melhores quando o valor do investimento é baixo. Pode haver mérito para estratégias de seleção de ações de valor ou momentum ao formar carteiras igualmente ponderadas pequenas.

O artigo contrasta alternativas realistas de investimento em ações para indivíduos, oferece uma visão do desempenho dos fundos de ações no Brasil e oferece implicações práticas que podem ser pertinentes em outros mercados emergentes.