Acta Univ. Agric. Silvic. Mendelianae Brun. 2020, 68(1), 139-155 | DOI: 10.11118/actaun202068010139

Performance of Six Sigma Rebalancing for Portfolios Mixing Polar Investment Styles

Martin Boďa1,2, Mária Kanderová2
1 Department of Mathematics, Faculty of Natural Sciences, Ján Evangelista Purkyně University in Ústí nad Labem, Pasteurova 1, 400 96 Ústí nad Labem, Czech Republic
2 Quantitative Methods and Information Systems Department, Faculty of Economics, Matej Bel University in Banská Bystrica, Národná 1, 974 01 Banská Bystrica, Slovak Republic

The paper investigates usefulness of a rebalancing strategy that was proposed in 2014 by Boďa and Roháčová and is based on ideas borrowed from the managerial concept Six Sigma. Centring upon a small investor who is willing to invest into S&P 500 Index components in an attempt to track the S&P 500 Index, the paper compares the performance of different rebalancing strategies for four different sets of monthly data ranging from 2011 to 2017. Rebalancing is undertaken on a monthly basis and tracking portfolios are diversified by investing in proportions into stocks belonging to investment styles defined by size (big/small caps) and market-to-book ratio (growth/value stocks). The results show that the Six Sigma rebalancing strategy is superior in a transaction-cost-free environment, but when transaction costs are accounted for, it is dominated by the buy-and hold strategy and a liberal threshold rebalancing strategy. Overall, periodic rebalancing fares unsatisfactorily with respect to criteria adopted for performance assessment.

Keywords: rebalancing, Six Sigma, big and small caps, growth and value stocks, quadratic tracking, performance
Grants and funding:

The research presented in the paper arose in fulfilment of the grant scheme of VEGA [# 1/0554/16].

Received: June 3, 2019; Accepted: December 2, 2019; Published: February 27, 2020  Show citation

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Boďa, M., & Kanderová, M. (2020). Performance of Six Sigma Rebalancing for Portfolios Mixing Polar Investment Styles. Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, 68(1), 139-155. doi: 10.11118/actaun202068010139
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