IDEAS home Printed from https://ideas.repec.org/a/wsi/ijtafx/v23y2020i07ns021902492050048x.html
   My bibliography  Save this article

Approximating The Growth Optimal Portfolio And Stock Price Bubbles

Author

Listed:
  • ECKHARD PLATEN

    (School of Mathematical and Physical Sciences and Finance Discipline Group, University of Technology Sydney, College of Business and Economics, Australian National University, Canberra, Australia2Department of Actuarial Science, University of Cape Town, South Africa)

  • RENATA RENDEK

    (Quantitative Finance Research Centre, University of Technology Sydney, Australia)

Abstract

In practice, optimal portfolio construction for large stock markets has never been conclusively resolved because estimating the required means of returns with sufficient accuracy is a highly intractable task. By avoiding estimation, this paper approximates closely the growth optimal portfolio (GP) for the stocks of developed markets with a well-diversified, hierarchically weighted index (HWI). For stocks denominated in units of the HWI, their current value turns out to be strictly greater than their future expected values, which indicates the existence of stock price bubbles that could be systematically exploited for long-term asset management. It is shown that the HWI does not leave much room for significant performance improvements as proxy for the GP.

Suggested Citation

  • Eckhard Platen & Renata Rendek, 2020. "Approximating The Growth Optimal Portfolio And Stock Price Bubbles," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 23(07), pages 1-33, November.
    • Handle: RePEc:wsi:ijtafx:v:23:y:2020:i:07:n:s021902492050048x
    DOI: 10.1142/S021902492050048X
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S021902492050048X
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S021902492050048X?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

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


    Cited by:

    1. Eckhard Platen, 2024. "Benchmark-Neutral Pricing," Papers 2407.01542, arXiv.org.

    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:wsi:ijtafx:v:23:y:2020:i:07:n:s021902492050048x. See general information about how to correct material in RePEc.

    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.

    We have no bibliographic references for this item. You can help adding them by using 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ijtaf/ijtaf.shtml .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.