Explain what determines an appropriate rebalancing policy

Corridor width should reflect a cost–benefit trade-off. Higher transaction costs argue for wider bands; greater risk tolerance allows wider bands; a higher correlation between the asset and the rest of the portfolio allows wider bands, since the two tend to move together and their weights drift apart less; higher volatility of the asset, or of the rest of the portfolio, argues for narrower bands. Taxable investors face higher effective costs and so use wider bands, and illiquid assets need wider bands too. Other choices are whether to rebalance fully to target or only back to the edge of the band. Beliefs about momentum favour wider bands; beliefs about mean reversion favour tighter ones. The trap is reversing a direction, especially correlation.