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Turnpike behavior of long-term investments

Author

Listed:
  • Chi-fu Huang

    (Long Term Capital Management, Greenwich, CT 06830, USA)

  • Thaleia Zariphopoulou

    (Department of Mathematics and School of Business, University of Wisconsin-Madison, Van Vleck Hall, 480, Lincoln Drive, Madison, WI 53706, USA Manuscript)

Abstract

We study the behavior of the optimal portfolio policy of a long-run investor in markets with stationary investment opportunity sets. We provide conditions on the utility function, for large wealth levels, which are sufficient for the optimal portfolio policy to approximate, as the trading horizon becomes very long, the policy of investing a constant proportion of wealth in the various assets. The analysis is carried out by employing the associated HJB equation and recent advances in the area of viscosity solutions.

Suggested Citation

  • Chi-fu Huang & Thaleia Zariphopoulou, 1999. "Turnpike behavior of long-term investments," Finance and Stochastics, Springer, vol. 3(1), pages 15-34.
    • Handle: RePEc:spr:finsto:v:3:y:1999:i:1:p:15-34
    Note: received: November 1996; final version received: December 1997
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    More about this item

    Keywords

    Turnpike portfolios; stochastic control; viscosity solutions;
    All these keywords.

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • G1 - Financial Economics - - General Financial Markets

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