If an asset is highly volatile, should the rebalancing corridor be wider or narrower? From the way I see it, a wider corridor would require less rebalancing but more deviations from the strategic asset allocation. A narrower corridor would stick more closer to the strategic asset allocation but result in more rebalancing related costs. The CFA Question Bank/Curriculum has given two different views on this. Question 22 of the online question bank says:
“Radell indicates that a wider rebalancing range for the global fixed-income fund is appropriate. …The lower the volatility of an asset class relative to the rest of the portfolio, the wider the optimal rebalancing corridor.” -> which means that the higher the volatility of asset class, narrower the optimal rebalancing corridor.
But the curriculum on Pg 318 (Vol 3) says that “…Higher-risk assets should have a wider corridor to avoid frequent, costly rebalancing…”