Exponential Growth of Fixed-Mix Strategies in Stationary Asset Markets

U of Cambridge Working Paper No. WP 01/2002

16 Pages Posted: 11 Apr 2002

See all articles by M. A. H. Dempster

M. A. H. Dempster

University of Cambridge - Centre for Financial Research; Cambridge Systems Associates Limited; University of Cambridge - Judge Business School

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics; Norwegian School of Economics (NHH) - Department of Finance

Igor V. Evstigneev

University of Manchester - Economics, School of Social Sciences

Abstract

The paper analyzes the long-run performance of dynamic investment strategies based on fixed-mix portfolio rules. Such rules prescribe to rebalance the portfolio by transferring funds between its positions according to fixed (time-independent) proportions. The focus is on asset markets where prices fluctuate as stationary stochastic processes. Under very general assumptions, it is shown that any fixed-mix strategy in a stationary market yields an exponential growth of the portfolio with probability one.

Keywords: Asset allocation, Fixed-mix strategies, Stationary markets, Exponential growth, Products of random matrices, Stochastic version of the Perron-Frobenius theorem

JEL Classification: G11, F31

Suggested Citation

Dempster, M. A. H. and Schenk-Hoppé, Klaus Reiner and Evstigneev, Igor V., Exponential Growth of Fixed-Mix Strategies in Stationary Asset Markets. U of Cambridge Working Paper No. WP 01/2002. Available at SSRN: https://ssrn.com/abstract=307095 or http://dx.doi.org/10.2139/ssrn.307095

M. A. H. Dempster

University of Cambridge - Centre for Financial Research ( email )

Centre for Mathematical Sciences
Wilberforce Road
Cambridge, CB3 0WA
United Kingdom

Cambridge Systems Associates Limited ( email )

5-7 Portugal Place
Cambridge, CB5 8AF
United Kingdom

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom

Klaus Reiner Schenk-Hoppé

University of Manchester - Department of Economics ( email )

Arthur Lewis Building
Oxford Road
Manchester, M13 9PL
United Kingdom

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

Igor V. Evstigneev (Contact Author)

University of Manchester - Economics, School of Social Sciences ( email )

Oxford Road
Manchester, M13 9PL
United Kingdom
+44 161 2754275 (Phone)
+44 161 2754812 (Fax)

HOME PAGE: http://www.evstigneev.net

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