TY - JOUR T1 - Work Harder: Diligent Rebalancing and Investment Horizon JF - The Journal of Portfolio Management DO - 10.3905/jpm.2020.1.201 SP - jpm.2020.1.201 AU - Wai Lee AU - Pai Liu Y1 - 2020/12/26 UR - https://pm-research.com/content/early/2020/12/26/jpm.2020.1.201.abstract N2 - In an age of constant information flow, investors have to strike the right balance between incorporating incremental information into a portfolio and managing turnover before the end of the investment horizon. Using a tractable yet realistic model of asset and signal dynamics, the authors provide analytical rigor to justify the optimality of the common practice of updating investment views and portfolio positions as new information arrives. In analyzing different approaches to rebalancing, their results indicate that regularly updating the conditional information set achieves a higher information ratio than either waiting to rebalance until after the investment horizon is reached or using regular rebalancing based on a moving average of the past information set. The authors provide guidance on turnover management in conjunction with the information horizon of the signal.TOPICS: Portfolio management/multi-asset allocation, portfolio construction, quantitative methods, statistical methods, performance measurementKey Findings▪ Information quality decays according to the investment horizon of the signal.▪ Diligent updates of information and rebalancing achieve the highest information ratio.▪ Turnover and marginal improvement in the information ratio can be balanced. ER -