ONLINE PORTFOLIO SELECTION USING MULTIPLICATIVE UPDATES

We present an on-line investment algorithm that achieves almost the sa me wealth as the best constant-rebalanced portfolio determined in hind sight from the actual market outcomes. The algorithm employs a multipl icative update rule derived using a framework introduced by Kivinen an d Warmuth. Our algorithm is very simple to implement and requires only constant storage and computing time per stock in each trading period. We tested the performance of our algorithm on real stock data from th e New York Stock Exchange accumulated during a 22-year period. On thes e data, our algorithm clearly outperforms the best single stock as wel l as Cover's universal portfolio selection algorithm. We also present results for the situation in which the investor has access to addition al ''side information.''