Optimal portfolio leverage

Paul van Rensburg ()
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Paul van Rensburg: Paul van Rensburg

Journal of Asset Management, 2016, vol. 17, issue 1, No 3, 22-33

Abstract: Abstract The Optimal Portfolio Leverage Ratio provides the level of leverage to use to attain the highest expected long-term terminal value of an investment and is calculated independently of investors’ indifference curves. This article applies a discrete multi-period compounding framework to both discrete and continuous cross-sectional pay-off distributions. In both cases, an Optimal Portfolio Leverage Ratio is derived from first principles and in the case of the latter, a multi-asset solution is also presented. The primary implications for equilibrium asset pricing are considered and a multi-period analogue to the CAPM is derived. This version of the CAPM is to be tested as a joint hypothesis with a specified Optimal Growth Portfolio.

Keywords: multi-period portfolio construction; Kelly rule; optimal portfolio leverage ratio; growth optimal asset pricing (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1057/jam.2015.36

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