A Bound on the Financial Value of Information

Andrew R. Barron and Thomas M. Cover

Chapter 13 in The Kelly Capital Growth Investment Criterion:Theory and Practice, 2011, pp 153-156 from World Scientific Publishing Co. Pte. Ltd.

Abstract: It will be shown that each bit of information at most doubles the resulting wealth in the general stock market setup. This information bound on the growth of wealth is actually attained for certain probability distributions on the market investigated by Kelly. The bound will be shown to be a special case of the result that the increase in exponential growth of wealth achieved with true knowledge of the stock market distribution F over that achieved with incorrect knowledge G is bounded above by D(F‖G), the entropy of F relative to G.

Keywords: Kelly Criterion; Dynamic Investment Analysis; Capital Growth Theory; Sports Betting; Hedge Fund Strategies; Speculative Investing; Fortune 's Formula (search for similar items in EconPapers)
Date: 2011
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