Multi-Period Portfolio Rebalancing with Personal Tax

Volume 15, Number 3, 2017
Ganlin Xu

This paper compares two heuristic rebalancing rules for taxable accounts. The first one is trading X percent annually. The second one is based on the result of recent research, which indicate there existence of no-trading zone. The no-trading zone is obtained by using a quadratic function to approximate the optimal value function. We show a simple and implementable approximation. We also show that the no-trading zone-based rebalancing rule performs better than trading X percent annually.