Investment strategies and hidden variables

Filippo Petroni () and M. Serva

The European Physical Journal B: Condensed Matter and Complex Systems, 2006, vol. 51, issue 4, 601-608

Abstract: The present study shows how the information on `hidden' market variables effects optimal investment strategies. We take the point of view of two investors, one who has access to the hidden variables and one who only knows the quotes of a given asset. Following Kelly's theory on investment strategies, the Shannon information and the doubling investment rate are quantified for both investors. Thanks to his privileged knowledge, the first investor can follow a better investment strategy. Nevertheless, the second investor can extract some of the hidden information looking at the past history of the asset variable. Unfortunately, due to the complexity of his strategy, this investor will have computational difficulties when he tries to apply it. He will than follow a simplified strategy, based only on the average sign of the last l quotes of the asset. This results have been tested with some Monte Carlo simulations. Copyright EDP Sciences/Società Italiana di Fisica/Springer-Verlag 2006

Keywords: 89.65.Gh Economics; econophysics, financial markets, business and management , (search for similar items in EconPapers)
Date: 2006
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1140/epjb/e2006-00254-2 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:eurphb:v:51:y:2006:i:4:p:601-608

Ordering information: This journal article can be ordered from
http://www.springer.com/economics/journal/10051

DOI: 10.1140/epjb/e2006-00254-2

Access Statistics for this article

The European Physical Journal B: Condensed Matter and Complex Systems is currently edited by P. Hänggi and Angel Rubio

More articles in The European Physical Journal B: Condensed Matter and Complex Systems from Springer, EDP Sciences
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().