Rolling Methodology
In contrast to the DBLCI, the DBLCI-MR undertakes no annual re-balancing. Instead, the individual commodity weights are reset every time any one of the commodities undergoes a ‘trigger event’. This happens when the one-year moving average of the commodity price is a whole multiple of 5% away from the five-year moving average. When this happens, the weights of all the commodities are re-balanced such that ‘expensive’ commodities have their weights reduced while ‘cheap’ commodities have their weights increased according to a simple, pre-defined formula. The entire process is rule-based and mandatory. The fact that there exist clear pre-set ‘hurdle rates’ to trigger a re-weighting, minimises the number of re-weightings and thus reduces the transactions costs for replication.
Read more about this topic: DBLCI Mean Reversion (MR) Index
Famous quotes containing the words rolling and/or methodology:
“The gods had condemned Sisyphus to ceaselessly rolling a rock to the top of a mountain, whence the stone would fall back of its own weight. They had thought with some reason that there is no more dreadful punishment than futile and hopeless labor.”
—Albert Camus (1913–1960)
“One might get the impression that I recommend a new methodology which replaces induction by counterinduction and uses a multiplicity of theories, metaphysical views, fairy tales, instead of the customary pair theory/observation. This impression would certainly be mistaken. My intention is not to replace one set of general rules by another such set: my intention is rather to convince the reader that all methodologies, even the most obvious ones, have their limits.”
—Paul Feyerabend (1924–1994)