That could help. “Standard” trendfollowing rebalances monthly because it’s simple, frequent enough to capture most changes in trends, but infrequent enough that it doesn’t incur a lot of transaction costs. But there could be more complicated approaches that do a better job of capturing trends without incurring too many extra costs. One idea I’ve considered is to look at buy-side signals monthly but sell-side signals daily, so if the market switches from a positive to negative trend, you’ll sell the following day, but if it switches back, you won’t buy until the next month. On the backtests I ran, it seemed to work reasonably well.
These were the results of a backtest I ran using the Ken French data on US stock returns 1926-2018:
CAGR
Stdev
Ulcer
Trades/Yr
B&H
9.5
16.8
23.0
Monthly
9.3
11.7
14.4
1.4
Daily
10.7
11.0
9.6
5.1
Sell-Daily
9.7
10.3
9.2
2.3
Buy-Daily
10.6
12.3
12.3
1.8
(“Ulcer” is the ulcer index, which IMO is a better measure of downside risk than standard deviation. It basically tells you the frequency and severity of drawdowns.)
I wonder if it makes sense to rebalance more frequently when volatility (or trading volume) is high.
That could help. “Standard” trendfollowing rebalances monthly because it’s simple, frequent enough to capture most changes in trends, but infrequent enough that it doesn’t incur a lot of transaction costs. But there could be more complicated approaches that do a better job of capturing trends without incurring too many extra costs. One idea I’ve considered is to look at buy-side signals monthly but sell-side signals daily, so if the market switches from a positive to negative trend, you’ll sell the following day, but if it switches back, you won’t buy until the next month. On the backtests I ran, it seemed to work reasonably well.
These were the results of a backtest I ran using the Ken French data on US stock returns 1926-2018:
(“Ulcer” is the ulcer index, which IMO is a better measure of downside risk than standard deviation. It basically tells you the frequency and severity of drawdowns.)