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Turnpike behavior of long-term investments

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Abstract.

We study the behavior of the optimal portfolio policy of a long-run investor in markets with stationary investment opportunity sets. We provide conditions on the utility function, for large wealth levels, which are sufficient for the optimal portfolio policy to approximate, as the trading horizon becomes very long, the policy of investing a constant proportion of wealth in the various assets. The analysis is carried out by employing the associated HJB equation and recent advances in the area of viscosity solutions.

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Authors and Affiliations

  1. Long Term Capital Management, Greenwich, CT 06830, USA , , , , , , US

    Chi-fu Huang

  2. Department of Mathematics and School of Business, University of Wisconsin-Madison, Van Vleck Hall, 480, Lincoln Drive, Madison, WI 53706, USA (e-mail: recep@math.wisc.edu) , , , , , , US

    Thaleia Zariphopoulou

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  1. Chi-fu Huang
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  2. Thaleia Zariphopoulou
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Manuscript received: November 1996; final version received: December 1997

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Huang, Cf., Zariphopoulou, T. Turnpike behavior of long-term investments. Finance Stochast 3, 15–34 (1999). https://doi.org/10.1007/s007800050050

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  • DOI: https://doi.org/10.1007/s007800050050

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