Canonical · Finance Theory · Paper
The Kelly Criterion & Position Sizing
John L. Kelly / Edward Thorp · 1956
"Kelly derived the fraction of bankroll to bet to maximize long-run logarithmic growth — bet too little and you compound slowly, bet too much and a single bad run wipes out the geometric advantage even with a positive edge."
Kelly asked Bell Labs' question in 1956: if you have an edge, what fraction should you actually bet? The answer — edge divided by odds — is the fastest sustainable compounding path, and most investors bet far past it.
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The Capital Asset Pricing Model (CAPM)
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William Sharpe · PaperContinue→