Quick question on 1/N rebalancing

[rmifaabsbb]

Hey,

 

we are writing a paper in Financial economics on Diversification. We need to rebalance 1/N (not for number of companies or momentum), something else. Demiguel and other researchers like him do this but never explain, what do they exactly mean and surprisingly Google does not have an answer. This is a direct request from the examiner and we have to do it, so would be nice if someone gave us a tip or where to look for it. I know the answer is most likely simple, but I'm not seeing it and I've been wrecking my head over this for way too long.

 

Thank you in advance for any suggestions.

[franfron]

Hi.

 

1/N diversification is simply the equal weightened portfolio. If N is the number of assets, each one is assigned a weight of 1/N. But you will need to rebalance each period due to changes in the returns of the different assets affecting their weights.

 

Yes, DeMiguel has worked in this portfolio selection strategy. You can read some of his papers on his website: http://faculty.london.edu/avmiguel/papers.html

 

For example, the paper with Garlappi and Uppal (2009): Optimal versus naive diversification.

 

Hope it helps.