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Article: Shrinkage estimation of Kelly portfolios

TitleShrinkage estimation of Kelly portfolios
Authors
KeywordsExpected long-term growth
Fractional Kelly
Kelly portfolio
Shrinkage estimation
Issue Date2019
PublisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/titles/14697688.asp
Citation
Quantitative Finance, 2019, v. 19 n. 2, p. 277-287 How to Cite?
AbstractAlthough the Kelly portfolio is theoretically optimal in maximizing the long-term log-growth rate, in practice this is not always so. In this paper, we first show that the sample plug-in estimator of the Kelly portfolio weights is actually biased, and we then propose an unbiased estimator as an alternative. We further derive a shrinkage estimator under the objective of minimizing the expected growth loss of the actual growth relative to the true growth. An explicit formula for the shrinkage coefficient is established. Statistical properties for the shrinkage coefficient are studied through extensive Monte Carlo simulations, and conditions for obtaining accurate estimates for the shrinkage coefficient are also discussed. The effectiveness of the proposed unbiased and shrinkage Kelly portfolios in reducing the expected growth loss are validated by various simulation studies. It is found that our proposed shrinkage Kelly portfolio has superior performances in growth loss reduction, followed by the unbiased Kelly portfolio, and the sample plug-in Kelly portfolio. The advantages of our proposed unbiased and shrinkage Kelly portfolios for long-term investments are additionally confirmed by stock investment in the U.S. market. © 2018, © 2018 Informa UK Limited, trading as Taylor & Francis Group.
Persistent Identifierhttp://hdl.handle.net/10722/275754
ISSN
2019 Impact Factor: 1.491
2015 SCImago Journal Rankings: 0.565
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorHan, Y-
dc.contributor.authorYu, PLH-
dc.contributor.authorMathew, T-
dc.date.accessioned2019-09-10T02:49:01Z-
dc.date.available2019-09-10T02:49:01Z-
dc.date.issued2019-
dc.identifier.citationQuantitative Finance, 2019, v. 19 n. 2, p. 277-287-
dc.identifier.issn1469-7688-
dc.identifier.urihttp://hdl.handle.net/10722/275754-
dc.description.abstractAlthough the Kelly portfolio is theoretically optimal in maximizing the long-term log-growth rate, in practice this is not always so. In this paper, we first show that the sample plug-in estimator of the Kelly portfolio weights is actually biased, and we then propose an unbiased estimator as an alternative. We further derive a shrinkage estimator under the objective of minimizing the expected growth loss of the actual growth relative to the true growth. An explicit formula for the shrinkage coefficient is established. Statistical properties for the shrinkage coefficient are studied through extensive Monte Carlo simulations, and conditions for obtaining accurate estimates for the shrinkage coefficient are also discussed. The effectiveness of the proposed unbiased and shrinkage Kelly portfolios in reducing the expected growth loss are validated by various simulation studies. It is found that our proposed shrinkage Kelly portfolio has superior performances in growth loss reduction, followed by the unbiased Kelly portfolio, and the sample plug-in Kelly portfolio. The advantages of our proposed unbiased and shrinkage Kelly portfolios for long-term investments are additionally confirmed by stock investment in the U.S. market. © 2018, © 2018 Informa UK Limited, trading as Taylor & Francis Group.-
dc.languageeng-
dc.publisherRoutledge. The Journal's web site is located at http://www.tandf.co.uk/journals/titles/14697688.asp-
dc.relation.ispartofQuantitative Finance-
dc.rightsPreprint: This is an Author's Original Manuscript of an article published by Taylor & Francis Group in [JOURNAL TITLE] on [date of publication], available online: http://www.tandfonline.com/doi/abs/[Article DOI]. Postprint: This is an Accepted Manuscript of an article published by Taylor & Francis Group in [JOURNAL TITLE] on [date of publication], available online at: http://www.tandfonline.com/doi/abs/[Article DOI].-
dc.subjectExpected long-term growth-
dc.subjectFractional Kelly-
dc.subjectKelly portfolio-
dc.subjectShrinkage estimation-
dc.titleShrinkage estimation of Kelly portfolios-
dc.typeArticle-
dc.identifier.emailYu, PLH: plhyu@hku.hk-
dc.identifier.authorityYu, PLH=rp00835-
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1080/14697688.2018.1483583-
dc.identifier.scopuseid_2-s2.0-85050975004-
dc.identifier.hkuros303897-
dc.identifier.volume19-
dc.identifier.issue2-
dc.identifier.spage277-
dc.identifier.epage287-
dc.identifier.isiWOS:000456007800008-
dc.publisher.placeUnited Kingdom-

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