Is it better for a bond index to be able to change every day, or only every month?
This paper discusses the pros and cons of each approach, using examples taken from the FTSE Canada Universe Bond Index, which rebalances daily, and a specially created equivalent series that uses the same methodology, except that it rebalances monthly.
As will be discussed, there are circumstances where one frequency or the other presents itself as a more “natural” choice. These circumstances are determined by the environments and objectives of asset owners, managers and other stakeholders, and ragovernge so widely that it could never be said that one choice is in all cases superior.
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