The maximum geometric mean criterion: revisiting the Markowitz–Samuelson debate: survey and analysis

Abstract

AbstractBy the Almost First-degree Stochastic Dominance (AFSD) rule, corresponding only to economically relevant preferences, for an infinite horizon the $$theoretical$$ theoretical claim of both Markowitz and Samuelson is not intact. However, for the practically more relevant case of the long but finite horizon, with stocks-bonds portfolios, Markowitz $$empirically$$ empirically is right as we find that the MGM portfolio coincides with the optimal myopic portfolio for all risk aversion parameters $$\alpha < 1.7$$ α < 1.7 . For $$\alpha \ge 1.7$$ α ≥ 1.7 the MGM portfolio dominates by AFSD rule all optimal myopic portfolios, as long as the investment horizon is 12–15 years or longer.