Informative index for investment based on Kelly criterion. Issue 8 (3rd August 2022)

• Record Type: Journal Article
• Authors: Wu, Mu-En; Syu, Jia-Hao; Srivastava, Gautam; Lin, Jerry Chun-Wei
• Is Part Of: Enterprise information systems. Volume 16:Issue 8/9(2022)
• Publication Date: 2022-08-03
• Subjects: Kelly criterion -- Kelly suitability index -- Fintech -- economic systems -- enterprise; Information storage and retrieval systems -- Periodicals; Management information systems -- Periodicals; Electronic commerce -- Periodicals; 658.4038011
• DOI: 10.1080/17517575.2021.1939425
• Languages: English
• ISSNs: 1751-7575

Abstract

ABSTRACT: When it comes to asset allocation and portfolio management, Kelly criterion is a mathematical formula used to optimise expected log-returns over the long term. Nonetheless, not all stocks are well suited for analysis using Kelly criterion, due to their transient nature and noisy data. This paper presents an innovative index by which to assess the suitability of stocks for analysis using the Kelly criterion. When applied to real-world stock data, the correlation coefficient between the proposed KSI and log-returns based on the Kelly criterion was − 57.045 % with a p -value of 1.215 × 10 − 1 . In a robustness test based on the Mid-Cap 100 dataset, the correlation coefficient was − 44.064 % with a p -value of 2.438 × 10 − 5 . The results demonstrate the efficacy of the KSI for portfolio management.