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
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: Suggested Citation