| Abstract: | This paper investigates portfolio revision with an emphasis on the decision of when to revise. A statistical technique based on the sequential analysis of the time series of portfolio return relatives determines when revision is to occur. The technique detects changes in the time series which are an indication that the underlying generating process of the time series has changed and that the portfolio should be, if necessary, revised. Thus, the length of the revision interval is variable and a function of the data. The statistical technique is utilized in conjunction with three portfolio revision strategies. These three revision strategies are compared to a buy and hold policy over three nonoverlapping, 12-year investment horizons. The basis of comparison is the net terminal values which include adjustments for transaction costs and taxes. The sensitivity of the statistical technique to its parameters is also analyzed. |
