When Should We be Prepared to Improve a Portfolio by Lacklustre Stocks? — A Note on Log-Optimal Portfolio Selection

D. Schäfer ()
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D. Schäfer: Universität Stuttgart, Mathematisches Institut A, Pfaffenwaldring 57, D–70569 Stuttgart, Germany

International Journal of Theoretical and Applied Finance (IJTAF), 2003, vol. 06, issue 07, 693-702

Abstract: As far as log-optimal portfolio selection is concerned the expected log-return of a portfolio may sometimes be improved by investing in stocks with smaller rather than greater expected log-return. Starting from explicit examples, a sufficient and necessary condition for this to happen in markets with log-normal return distributions is derived and discussed. Further implications to dimension reduction in portfolio selection are outlined.

Keywords: Log-optimal portfolio selection; log-normal return distribution; dimension reduction (search for similar items in EconPapers)
Date: 2003
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DOI: 10.1142/S0219024903002134

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