IDEAS home Printed from https://ideas.repec.org/p/zur/iewwpx/089.html
   My bibliography  Save this paper

From Rags to Riches: On Constant Proportions Investment Strategies

Author

Listed:
  • Igor V. Evstigneev
  • Klaus Rainer Schenk-Hopp�

Abstract

This paper studies the performance of self-financing constant proportions trading strategies, i.e. dynamic asset allocation strategies that keep a fixed constant proportion of wealth invested in each asset in all periods in time. We prove that any self-financing constant proportions strategy yields a strictly positive exponential rate of growth of investor's wealth in a financial market in which prices are described by stationary stochastic processes and the price ratios are non-degenerate. This result might be regarded as being counterintuitive because any such strategy yields no increase of wealth under constant prices. We further show that the result also holds under small transaction costs, which is important for the viability of this approach, since constant proportions strategies require frequent rebalancing of the portfolio.

Suggested Citation

  • Igor V. Evstigneev & Klaus Rainer Schenk-Hopp�, "undated". "From Rags to Riches: On Constant Proportions Investment Strategies," IEW - Working Papers 089, Institute for Empirical Research in Economics - University of Zurich.
  • Handle: RePEc:zur:iewwpx:089
    as

    Download full text from publisher

    File URL: http://www.econ.uzh.ch/static/wp_iew/iewwp089.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Igor V. Evstigneev & Thorsten Hens & Klaus Reiner Schenk-Hoppé, 2002. "Market Selection Of Financial Trading Strategies: Global Stability," Mathematical Finance, Wiley Blackwell, vol. 12(4), pages 329-339.
    2. Blume, Lawrence & Easley, David, 1992. "Evolution and market behavior," Journal of Economic Theory, Elsevier, vol. 58(1), pages 9-40, October.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Fabio Stella & Alfonso Ventura, 2011. "Defensive online portfolio selection," International Journal of Financial Markets and Derivatives, Inderscience Enterprises Ltd, vol. 2(1/2), pages 88-105.
    2. Aleksander Berentsen & Guillaume Rocheteau, 2003. "Money and the Gains from Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(1), pages 263-297, February.
    3. Igor Evstigneev & Dhruv Kapoor, 2009. "Arbitrage in stationary markets," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 32(1), pages 5-12, May.
    4. Igor Evstigneev & Klaus Reiner Schenk-Hoppé, 2003. "Volatility-induced Growth in Financial Markets," Discussion Papers 03-40, University of Copenhagen. Department of Economics.
    5. Sjur Flåm, 2010. "Portfolio management without probabilities or statistics," Annals of Finance, Springer, vol. 6(3), pages 357-368, July.
    6. Aleksander Berentsen & Guillaume Rocheteau, 2004. "Money and Information," Review of Economic Studies, Oxford University Press, vol. 71(4), pages 915-944.
    7. Berentsen, Aleksander & Rocheteau, Guillaume, 2002. "On the efficiency of monetary exchange: how divisibility of money matters," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1621-1649, November.
    8. Rama Cont & Lakshithe Wagalath, 2016. "Institutional Investors And The Dependence Structure Of Asset Returns," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(02), pages 1-37, March.
    9. Reto Foellmi & Urs Meister, 2005. "Product-Market Competition in the Water Industry: Voluntary Non-discriminatory Pricing," Journal of Industry, Competition and Trade, Springer, vol. 5(2), pages 115-135, June.
    10. Michael A. H. Dempster & Igor V. Evstigneev & Klaus R. Schenk-hoppe, 2007. "Volatility-induced financial growth," Quantitative Finance, Taylor & Francis Journals, vol. 7(2), pages 151-160.

    More about this item

    Keywords

    financial markets; constant-proportions investment strategies; balanced growth portfolios; self-financing strategies;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:zur:iewwpx:089. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser). General contact details of provider: http://edirc.repec.org/data/seizhch.html .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.