PT - JOURNAL ARTICLE
AU - Estrada, Javier
TI - Geometric Mean Maximization: <em>An Overlooked Portfolio Approach?</em>
AID - 10.3905/joi.2010.19.4.134
DP - 2010 Nov 30
TA - The Journal of Investing
PG - 134--147
VI - 19
IP - 4
4099 - http://joi.pm-research.com/content/19/4/134.short
4100 - http://joi.pm-research.com/content/19/4/134.full
AB - Academics and practitioners usually optimize portfolios on the basis of mean and variance. They set the goal of maximizing risk-adjusted returns measured by the Sharpe ratio and thus determine their optimal exposures to the assets considered. However, there is an alternative criterion that has an equally plausible underlying idea. Geometric mean maximization aims to maximize the growth of the capital invested, thus seeking to maximize terminal wealth. This criterion has several attractive properties and is easy to implement, and yet it seems to have taken a back seat to the maximization of risk-adjusted returns. The ultimate goal of this article is to compare both criteria from an empirical perspective. The results reported and discussed leave the question posed in the title largely intact: Are academics and practitioners overlooking a useful portfolio approach?TOPICS: Portfolio construction, equity portfolio management, volatility measures