Article1971

Capital Growth and the Mean-Variance Approach to Portfolio Selection

199 citations0/0 files storedJournal of Financial and Quantitative Analysis

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Risk and Portfolio Optimization Financial Markets and Investment Strategies Stochastic processes and financial applications

Abstract

Three main approaches to the problem of portfolio selection may be discerned in the literature. The first of these is the mean-variance approach, pioneered by Markowitz [21], [22], and Tobin [30]. The second approach is that of chance-constrained programming, apparently initiated by Naslund and Whinston [26]. The third approach, Latané [19] and Breiman [6], [7], has its origin in capital growth considerations. The purpose of this paper is to contrast the mean-variance model, by far the most well-known and most developed model of portfolio selection, with the capital growth model, undoubtedly the least known. In so doing, we shall find the mean-variance model to be severely compromised by the capital growth model in several significant respects.

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References

2019Theory of games and economic behavior 1965The Behavior of Stock-Market Prices 1945Theory of Games and Economic Behavior 1966Aspects of the Theory of Risk-Bearing.1968The Random Character of Stock Market Prices 1968Optimal Multiperiod Portfolio Policies 1963An Expected Gain-Confidence Limit Criterion for Portfolio Selection 1959Criteria for Choice Among Risky Ventures

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1980Competitive Optimality of Logarithmic Investment 1984An algorithm for maximizing expected log investment return 1981A General Mean-Variance Approximation to Expected Utility for Short Holding Periods 1975Portfolio Choice and the Kelly Criterion**This research was supported in part by the Air Force Office of Scientific Research under Grant AF-AFOSR 1870A. An expanded version of this paper will be submitted for publication elsewhere.2017Portfolio selection problems with Markowitz’s mean–variance framework: a review of literature 1977

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