Fractional Growth Portfolio Investment
We review some fundamental concepts of investment from a mathematical perspective, concentrating specifically on fractional-Kelly portfolios, which allocate a fraction of wealth to a growth-optimal portfolio while the remainder collects (or pays) interest at a risk-free rate. We elucidate a coherent continuous-parameter time-series framework for analysis of these portfolios, explaining relationships between Sharpe ratios, growth rates, and leverage. We see how Kelly's criterion prescribes the same leverage as Markowitz mean-variance optimization. Furthermore, for fractional Kelly portfolios, we state a simple distributional relationship between portfolio Sharpe ratio, the fractional coefficient, and portfolio log-returns. These results provide critical insight into realistic expectations of growth for different classes of investors, from individuals to quantitative trading operations. We then illustrate application of the results by analyzing performance of various bond and equity mixes for an investor. We also demonstrate how the relationships can be exploited by a simple method-of-moments calculation to estimate portfolio Sharpe ratios and levels of risk deployment, given a fund's reported returns.
Code (0)
등록된 구현이 없습니다.
Tasks
Time SeriesTime Series AnalysisSimilar Papers 제목 키워드 기반
Quantum computing approach to realistic ESG-friendly stock portfolios
Finding an optimal balance between risk and returns in investment portfolios is a central challenge in quantitative finance, often addressed through Markowitz portfolio theory (MPT). While traditional portfolio optimizat…
Portfolio OptimizationDiversification, Volatility, and Surprising Alpha
It has been widely observed that capitalization-weighted indexes can be beaten by surprisingly simple, systematic investment strategies. Indeed, in the U.S. stock market, equal-weighted portfolios, random-weighted portfo…
Optimal Betting: Beyond the Long-Term Growth
While the Kelly portfolio has many desirable properties, including optimal long-term growth rate, the resulting investment strategy is rather aggressive. In this paper, we suggest a unified approach to the risk assessmen…
The Relationship between Foreign Portfolio Investment, Foreign Direct Investment and Economic Performance of Nigerian Economy: (1980-2017): An Empirical Analysis
The study examined the impact of foreign portfolio investment and Foreign Direct Investment on the performance of the Nigerian Economy over a period of 1980-2017. The data used were purely secondary sourced from the cent…
Residual Income Valuation and Stock Returns: Evidence from a Value-to-Price Investment Strategy
We hypothesize that portfolio sorts based on the V/P ratio generate excess returns and consist of companies that are undervalued for prolonged periods. Results, for the US market show that high V/P portfolios outperform …