IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v22y1975i4p391-400.html
   My bibliography  Save this article

Compound-Return Mean-Variance Efficient Portfolios Never Risk Ruin

Author

Listed:
  • Nils H. Hakansson

    (Graduate School of Business Administration, University of California, Berkeley)

  • Bruce L. Miller

    (Department of Engineering Systems, University of California, Los Angeles)

Abstract

The implications of concentrating on the lowest moment(s) of average compound return over N periods in making investment decisions have recently been examined. In particular, maximization of expected average compound return has been shown to imply the existence of a utility of wealth function in each period with the "right" properties for all finite N \ge 2 as well as in the limit. More importantly, for large N a close (or exact) approximation to the set of mean-variance efficient portfolios (with respect to average compound return) is obtainable via a subset of the isoelastic class of utility of wealth functions. The properties of this class render it both empirically plausible and highly attractive analytically: among them are monotonicity, strict concavity, and decreasing risk aversion; moreover, the optimal mix of risky assets is independent of initial wealth (providing a basis for the formation of mutual funds) and the optimal investment policy is myopic. The purpose of this paper is to extend the class of return distributions for which the preceding results hold and to demonstrate that portfolios which are efficient with respect to average compound return, at least for large N, do not risk ruin either in a short-run or a long-run sense.

Suggested Citation

  • Nils H. Hakansson & Bruce L. Miller, 1975. "Compound-Return Mean-Variance Efficient Portfolios Never Risk Ruin," Management Science, INFORMS, vol. 22(4), pages 391-400, December.
  • Handle: RePEc:inm:ormnsc:v:22:y:1975:i:4:p:391-400
    DOI: 10.1287/mnsc.22.4.391
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.22.4.391
    Download Restriction: no

    File URL: https://libkey.io/10.1287/mnsc.22.4.391?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Napat Rujeerapaiboon & Daniel Kuhn & Wolfram Wiesemann, 2016. "Robust Growth-Optimal Portfolios," Management Science, INFORMS, vol. 62(7), pages 2090-2109, July.
    2. Yong, Luo & Bo, Zhu & Yong, Tang, 2013. "Dynamic optimal capital growth with risk constraints," Economic Modelling, Elsevier, vol. 30(C), pages 586-594.
    3. Zhu, Bo & Zhang, Tianlun, 2021. "Long-term wealth growth portfolio allocation under parameter uncertainty: A non-conservative robust approach," The North American Journal of Economics and Finance, Elsevier, vol. 57(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:22:y:1975:i:4:p:391-400. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.