A dynamic portfolio of investment strategies: Applying capital growth with drawdown penalties

John M. Mulvey, Mehmet Bilgili, Taha M. Vural

Research output: Chapter in Book/Report/Conference proceedingChapter

5 Scopus citations

Abstract

The growth optimal investment strategy has been shown to be highly effective for structured decision problems such as blackjack, sports betting, and high frequency trading. For securities markets, these strategies are more difficult to apply due to a variety of practical issues: structural changes in market behavior due to varying risk premium and related factors, transaction costs, operational constraints, and path dependent risk measures for many investors, including surplus risks for a defined-benefit pension plan. In addition, the standard three step approach for institutional money management does not allow for rapid changes in asset allocation - especially needed during highly turbulent periods. We modify the growth models to address downside protection, along with applying a portfolio of investment strategies - to improve diversification of the portfolio. Empirical results show the benefits of the concepts during normal and crash (2008) periods.

Original languageEnglish (US)
Title of host publicationThe Kelly Capital Growth Investment Criterion
Subtitle of host publicationTheory And Practice
PublisherWorld Scientific Publishing Co.
Pages735-751
Number of pages17
ISBN (Electronic)9789814293501
ISBN (Print)9789814293495
StatePublished - Feb 10 2011

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)
  • Mathematics(all)

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