Developing a dynamic portfolio selection model with a self-adjusted rebalancing method

Jongbin Jung, Seongmoon Kim

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

In this paper, we propose a comprehensive investment strategy for not only selecting but also maintaining an investment portfolio that takes into account changing market conditions. First, we implement a dynamic portfolio selection model (DPSM) that uses a time-varying investment target according to market forecasts. We then develop a self-adjusted rebalancing (SAR) method to assess the portfolio's relevance to current market conditions, and further identify the appropriate timing for rebalancing the portfolio. We then integrate the DPSM and SAR into a comprehensive investment strategy, and develop an adaptive learning heuristic for determining the parameter of the proposed investment strategy. We further evaluate the performance of the proposed investment strategy by simulating investments with historical stock return data from different markets around the world, across a period of 10 years. The SAR Portfolio, maintained according to the proposed investment strategy, showed superior performance compared with benchmarks in each of the target markets.

Original languageEnglish
Pages (from-to)766-779
Number of pages14
JournalJournal of the Operational Research Society
Volume68
Issue number7
DOIs
Publication statusPublished - 2017 Jul 1

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All Science Journal Classification (ASJC) codes

  • Management Information Systems
  • Strategy and Management
  • Management Science and Operations Research
  • Marketing

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