Related papers: Sufficiency on the Stock Market
This article argues that the Situation theory and the Channel theory can be used as a general framework for Imperfect Information Management. Different kinds of imperfections are uncertainty, imprecision, vagueness, incompleteness,…
We consider a model of oligopolistic competition in a market with search frictions, in which competing firms with products of unknown quality advertise how much information a consumer's visit will glean. In the unique symmetric equilibrium…
Recent studies have introduced the worst-case quantum divergence as a key measure in quantum information. Here we show that such divergences can be understood from the perspective of the resource theory of asymmetric distinguishability,…
In this paper, we prove the existence of fundamental relations between information theory and estimation theory for network-coded flows. When the network is represented by a directed graph G=(V, E) and under the assumption of uncorrelated…
The widening inequality in income distribution in recent years, and the associated excessive pay packages of CEOs in the U.S. and elsewhere, is of growing concern among policy makers as well as the common person. However, there seems to be…
The Kullback-Leibler (KL) divergence is a fundamental equation of information theory that quantifies the proximity of two probability distributions. Although difficult to understand by examining the equation, an intuition and understanding…
Most decision theories, including expected utility theory, rank dependent utility theory and cumulative prospect theory, assume that investors are only interested in the distribution of returns and not in the states of the economy in which…
For a game with positive expectation and some negative profit, a unique price exists, at which the optimal proportion of investment reaches its maximum. For a game with parallel translated profit, the ratio of this price to its expectation…
A stock market is called diverse if no stock can dominate the market in terms of relative capitalization. On one hand, this natural property leads to arbitrage in diffusion models under mild assumptions. On the other hand, it is also easy…
We study the problem of gambling in horse races with causal side information and show that Massey's directed information characterizes the increment in the maximum achievable capital growth rate due to the availability of side information.…
Risk and uncertainty will always be a matter of experience, luck, skills, and modelling. Leverage is another concept, which is critical for the investor decisions and results. Adaptive skills and quantitative probabilistic methods need to…
A drawdown constraint forces the current wealth to remain above a given function of its maximum to date. We consider the portfolio optimisation problem of maximising the long-term growth rate of the expected utility of wealth subject to a…
We show that financial correlations exhibit a non-trivial dynamic behavior. We introduce a simple phenomenological model of a multi-asset financial market, which takes into account the impact of portfolio investment on price dynamics. This…
Hierarchies of conditional beliefs (Battigalli and Siniscalchi 1999) play a central role for the epistemic analysis of solution concepts in sequential games. They are modelled by type structures, which allow the analyst to represent the…
The notion of information pervades informal descriptions of biological systems, but formal treatments face the problem of defining a quantitative measure of information rooted in a concept of fitness, which is itself an elusive notion.…
How can graph theory be applied to investing in the stock market? The answer may help investors realize the true risks of their investments, help prevent recessions like that of 2008, and increase financial literacy amongst students. Using…
We consider portfolio selection under nonparametric $\alpha$-maxmin ambiguity in the neighbourhood of a reference distribution. We show strict concavity of the portfolio problem under ambiguity aversion. Implied demand functions are…
We present a model for studying communities of epistemically interacting agents who update their belief states by averaging (in a specified way) the belief states of other agents in the community. The agents in our model have a rich belief…
This paper proposes a theory of stock market predictability patterns based on a model of heterogeneous beliefs. In a discrete finite time framework, some agents receive news about an asset's fundamental value through a noisy signal. The…
In this paper, motivated by the celebrated work of Kelly, we consider the problem of portfolio weight selection to maximize expected logarithmic growth. Going beyond existing literature, our focal point here is the rebalancing frequency…