Calendar Rebalancing vs Percentage Rebalancing (transaction cost, volatility, correlation)

CFA Level III Portfolio Management
#1

Just did a CFA EOC 5 in the Monitoring and Rebalancing chapter.

A fixed +/- 5% corridor takes no account of

  1. differences in transaction costs among the asset classes

  2. differences in volatility

  3. asset class correlations

For the calendar rebalancing, I can see the transaction cost is considered depending on how far away the portfolio is from the target allocations. How about the volatility and correlation? Does calendar rebalancing consider these two factors in addition to the transaction costs?

Thank you!

#2

I’d say yes if you’re allowed to use judgement when rebalancing on the calendar reset date. If it’s a hard rebalance then id say no.

#3

I agree with googs. As I can see, same rules apply regarding the influences all of above with the only difference by calendar rebalancing. portfolio is adjusted upon fixed predefined calendar dates.

#4

Sorry if I was not very clear with highlighting some of words.

The statement indicates that The corridor method (A fixed +/- 5% corridor takes no account of) does NOT consider the three factors listed.

I thought calendar rebalancing considers at least the transaction cost. Because in the Kaplan note, it indicates that if the deviation is small from the optimal weights. The costs of rebalancing could be greater than the benefit.