Hello, I’m actually writing a Master thesis about value and growth stocks.
I have portfolios with only stocks in it and I would like to rebalance the portfolios by putting more weights on stocks that have positive returns and less weight on stocks that have negative returns (on year 1 the portfolios are equally weighted, the rebalancing starts on year 2 after having the returns).
Of course, some stocks will have better positive returns than others. So the changing weights wont be the same for every stocks.
Therefore, I’m looking for a formula that does this calculation. The only one that I’ve found is : weights (year 2) = weight (year 1) * (1+return) and it’s GPT that gave me the formula. But my professor wants me to work with the literature.
If any of you can help by giving me another formula, or studies that used the formula above, it would help me a lot.