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Rev Fin 1999; 12:165-195
© 1999 the Society for Financial Studies

Article

Portfolio turnpikes

PH Dybvig1,z, LCG Rogers2 and K Back1
1 Washington University Olin School, Campus Box 1133, 1 Brookings Dr., St Louis, MO 63130-4899, USA
2 University of Bath, UK
z Corresponding author e-mail: dybig@dybfin.wustl.edu

Abstract

Profolio turnpike theorems show that if preferences at large wealth levels are similar to power utility, then the investment strategy converges to the power utility strategy as the horizon increases. We state and prove two simple and general portfolio turnpike theorems. Unlike existing literature, our main result does not assume independence of returns and depends only on discounting of future cash flows. We also provide a critique of portfolio turnpike results, based on the observations that (1) the time required for convergence is often too large to be relevant, and (2) there is no convergence for consumption withdrawal problems.


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