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A preference foundation for log mean–variance criteria in portfolio choice problems

In: THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE

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  • David G. Luenberger

Abstract

The appropriate criterion for evaluating, and hence also for properly constructing, investment portfolios whose performance is governed by an infinite sequence of stochastic returns has long been a subject of controversy and fascination. A criterion based on the expected logarithm of one-period return is known to lead to exponential growth with the greatest exponent, almost surely; and hence this criterion is frequently proposed. A refinement has been to include the variance of the logarithm of return as well, but this has had no substantial theoretical justification…

Suggested Citation

  • David G. Luenberger, 2011. "A preference foundation for log mean–variance criteria in portfolio choice problems," World Scientific Book Chapters, in: Leonard C MacLean & Edward O Thorp & William T Ziemba (ed.), THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE, chapter 42, pages 599-618, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814293501_0042
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    Cited by:

    1. Matej Uhr'in & Gustav v{S}ourek & Ondv{r}ej Hub'av{c}ek & Filip v{Z}elezn'y, 2021. "Optimal sports betting strategies in practice: an experimental review," Papers 2107.08827, arXiv.org.

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