On functional log portfolios
by Dimitrios D. Thomakos; Rafael Yahlomi; Dimitrios Karaoulanis
International Journal of Portfolio Analysis and Management (IJPAM), Vol. 2, No. 4, 2024

Abstract: This paper shows that trying to maximise portfolio returns or minimise portfolio variance via a monotonic but otherwise positive transformation results in a unique portfolio functional that is given by the natural logarithm. This is a novel result of theoretical and practical interest for two reasons. First, our theoretical results are highly associated with, but at the same time different from, the theory and applications of the log-optimal portfolios which have been derived under quite different and complicated conditions. Second, our empirical results show that our new approach, which we term functional log-portfolios, strongly support the use of this new portfolio allocation approach - as being highly competitive to both the optimal log-portfolio and other kinds of portfolios traditionally used in the literature and practice.

Online publication date: Fri, 05-Apr-2024

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