Abstract

https://ssrn.com/abstract=2875682
 


 



Optimal Trade Sizing in a Game with Favourable Odds: The Stock Market


Victor Haghani


Elm Partners

Andrew Morton


Citigroup, Inc. - Citigroup Global Markets

November 25, 2016


Abstract:     
In this short note, we show investors one way to calculate ideal investment sizing by using two rules of thumb based on a simple outline of individual risk aversion. We illustrate these two heuristics, which are not widely appreciated, with thought experiments involving coin flips and ketchup & French fries, which we hope will make these results easy to recall and apply well after reading this note. We conclude by posing other questions that this simple framework can be used to explore.

Number of Pages in PDF File: 4

Keywords: Decision Making under Uncertainty, Risk, Uncertainty, Utility, Risk Aversion, Kelly, Coin Flip, Heuristics, Rules of Thumb, Behavioral Finance, Market Timing, Gamblers Fallacy, St. Petersburg Paradox, Gambling, Betting, CRRA

JEL Classification: B12, B16, B20, C00, C10, C11, C50, C57, C73, D03, D81, D83, E00, G00, G02, G11, G12, G14, G17, G23


Open PDF in Browser Download This Paper

Date posted: December 2, 2016 ; Last revised: December 5, 2016

Suggested Citation

Haghani, Victor and Morton, Andrew, Optimal Trade Sizing in a Game with Favourable Odds: The Stock Market (November 25, 2016). Available at SSRN: https://ssrn.com/abstract=2875682

Contact Information

Victor Haghani (Contact Author)
Elm Partners ( email )
1630 Willow View Drive
PO Box 1417
Wilson, WY 83014
HOME PAGE: http://www.elmfunds.com
Andrew Morton
Citigroup, Inc. - Citigroup Global Markets ( email )
399 Park Avenue
6th Floor
New York, NY 10043
United States
Feedback to SSRN


Paper statistics
Abstract Views: 1,998
Downloads: 1,066
Download Rank: 14,550