BSU bulletin. Economy and Management
Bibliographic description:
An Analysis of the Potential for Rebalancing Strategy to Generate Premium Returns in Long-Only Portfolios // BSU bulletin. Economy and Management. - 2026. №2. . - С. 160-166.
Title:
An Analysis of the Potential for Rebalancing Strategy to Generate Premium Returns in Long-Only Portfolios
Financing:
Codes:
Annotation:
The primary purpose of rebalancing strategies in long-term investing is risk aversion, but investors also expect to generate excess returns or premium returns through rebalancing strategies. The article analyzes the probability of premium returns from rebalancing strategies using pure long-only portfolios. Rebalancing Alpha can be used to assess the likelihood of obtaining premium returns. A positive rebalancing Alpha indicates that the rebalancing strategy can generate premium returns. Therefore, the higher the probability of a positive rebalancing Alpha, the greater the likelihood of premium returns from the rebalancing strategy. We have analyzed both the simple two-asset model and the general model. It shows that for a long-only portfolio of two assets the probability of a positive rebalancing Alpha is approximated as a t-distribution with M-1 degree of freedom where M is the investment period. While for a multi-asset long-only portfolio the rebalancing Alpha of a portfolio is the sum of the rebalancing Alphas of all different asset pairs. The probability of the positive portfolio rebalancing Alpha is equal to the product of probabilities that the rebalancing Alphas of all asset pairs are positive. Therefore, the conditions for a positive rebalancing Alpha are very stringent. Even if a positive rebalancing Alpha exists, its value is usually very small and its duration is very short. This explains why, in practice, investors find it difficult to obtain premium returns from rebalancing strategies.
Keywords:
rebalanced portfolios, long-only portfolios, rebalancing Alpha, rebalancing strategies, premium returns.
List of references:
Osipova G. M. Strategy for investment development of the stock market: A theoretical aspect. Bulletin of Buryat State University. Economics and Management. 2019; 2: 58–65 (In Russ.).
Tsyrenov D. D., Khemraev M., Tsybenov M. V., Mandarov R. S. Comparative analysis of territorial production complexes and industrial clusters as forms of spatial organization of the economy. Bulletin of Buryat State University. Economy and Management. 2022; 4: 132– 140 (In Russ.).
Carlson T. Alt 60/40: Modern ETF Portfolio Construction without Bonds or Derivatives
: preprint (SSRN), 1 Oct. 2025, 30 p.
Chaudhury M. The Financial Crisis and the Behavior of Stock Prices. SSRN Electronic Journal. 2011. DOI: 10.2139/ssrn.1802826.
Dimson E., Marsh P., Staunton M. Credit Suisse Global Investment Returns Yearbook 2023: Summary Edition. Credit Suisse Research Institute, 2023, 54 p. Available at: https://ubsachdokpdf.ub.unibas.ch/9963586200105504/9963586200105504_D2023_Yearbook
%202023.pdf (accessed 28.01.2026).
Ibbotson R. G., Sinquefield R. A. Stocks, bonds, bills, and inflation: year-by-year historical returns (1926–1974). The Journal of Business. 1976; 49(1): 11–47.
Qian E. E. Portfolio Rebalancing. New York, Chapman and Hall/CRC, 2018, 262 p.
Rastogi S. The financial crisis of 2008 and stock market volatility — analysis and impact on emerging economies pre and post crisis. Afro-Asian Journal of Finance and Accounting. 2014; 4(4): 443–459.
Robinson J., Langley B. The 60/40 Problem: Examining the Traditional 60/40 Portfolio in an Uncertain Rate Environment : preprint (SSRN), 01 Apr 2017, 16 p.
Siegel J. J. Stocks for the Long Run: The Definitive Guide to Financial Market Returns
& Long-Term Investment Strategies. 6th ed. McGraw Hill, 2022, 512 p.
Tsyrenov D. D., Khemraev M., Tsybenov M. V., Mandarov R. S. Comparative analysis of territorial production complexes and industrial clusters as forms of spatial organization of the economy. Bulletin of Buryat State University. Economy and Management. 2022; 4: 132– 140 (In Russ.).
Carlson T. Alt 60/40: Modern ETF Portfolio Construction without Bonds or Derivatives
: preprint (SSRN), 1 Oct. 2025, 30 p.
Chaudhury M. The Financial Crisis and the Behavior of Stock Prices. SSRN Electronic Journal. 2011. DOI: 10.2139/ssrn.1802826.
Dimson E., Marsh P., Staunton M. Credit Suisse Global Investment Returns Yearbook 2023: Summary Edition. Credit Suisse Research Institute, 2023, 54 p. Available at: https://ubsachdokpdf.ub.unibas.ch/9963586200105504/9963586200105504_D2023_Yearbook
%202023.pdf (accessed 28.01.2026).
Ibbotson R. G., Sinquefield R. A. Stocks, bonds, bills, and inflation: year-by-year historical returns (1926–1974). The Journal of Business. 1976; 49(1): 11–47.
Qian E. E. Portfolio Rebalancing. New York, Chapman and Hall/CRC, 2018, 262 p.
Rastogi S. The financial crisis of 2008 and stock market volatility — analysis and impact on emerging economies pre and post crisis. Afro-Asian Journal of Finance and Accounting. 2014; 4(4): 443–459.
Robinson J., Langley B. The 60/40 Problem: Examining the Traditional 60/40 Portfolio in an Uncertain Rate Environment : preprint (SSRN), 01 Apr 2017, 16 p.
Siegel J. J. Stocks for the Long Run: The Definitive Guide to Financial Market Returns
& Long-Term Investment Strategies. 6th ed. McGraw Hill, 2022, 512 p.
Article.pdf