Infrequent Rebalancing, Return Autocorrelation, and Seasonality. (December 2016)

• Record Type: Journal Article
• Authors: BOGOUSSLAVSKY, VINCENT
• Is Part Of: Journal of finance. Volume 71:Number 6(2016:Dec.)
• Page Start: 2967
• Page End: 3006
• Publication Date: 2016-12
• Subjects: Finance -- Periodicals; Finance -- United States -- Periodicals; 332.05
• DOI: 10.1111/jofi.12436
• Languages: English
• ISSNs: 0022-1082

Abstract

ABSTRACT: A model of infrequent rebalancing can explain specific predictability patterns in the time series and cross‐section of stock returns. First, infrequent rebalancing produces return autocorrelations that are consistent with empirical evidence from intraday returns and new evidence from daily returns. Autocorrelations can switch sign and become positive at the rebalancing horizon. Second, the cross‐sectional variance in expected returns is larger when more traders rebalance. This effect generates seasonality in the cross‐section of stock returns, which can help explain available empirical evidence.