Exponential growth of fixed-mix strategies in stationary asset markets (Q1424717)

The paper examines the long-run performance of fixed-mix dynamic investment strategies in the asset market where prices fluctuate as stationary stochastic processes. A fixed-mix strategy prescribes the transfer, at each step, of a fixed share \(\alpha_{kj}>0\) of the \(j\)th position of the portfolio to the \(k\)th position. The purpose of the paper is to analyze the asymptotic behaviour of the portfolio when the trader employs a fixed-mix investment rule during a sufficiently long time period. The authors begin with the analysis of a frictionless market. Then they consider a version of the model involving transaction costs. It is shown that the results can be extended to the case of a market with friction, provided the transaction costs are small enough. Some properties of the model are established, in particular, the existence of balanced strategies. Finally, it is demonstrated how the results can be modified for the market where only relative proportions of the prices change in time as stationary stochastic processes. Under very general assumption, it is shown that an fixed-mix strategy in a stationary market yields exponential growth of the portfolio with probability 1.