Journal of Finance and Investment Analysis

An Alternative Mathematical Interpretation and Generalization of the Capital Growth Criterion

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  •                                                Abstract

    The Law of Large Numbers provides one basis for the capital growth criterion, which maximizes the expected value of log return per period. In this letter, an alternative derivation of this criterion is presented based on the first-order asymptotic expansion of the return per period. A second-order expansion gives rise to a more general growth criterion that approximates optimal compound growth for a finite number of periods.