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Kelly criterion has nothing to do with bubbles (it says nothing about timings, and the main challenge of bubbles is timing). Also, Kelly criterion uses odds rec
by jsn 16y ago
Kelly criterion has nothing to do with bubbles (it says nothing about timings, and the main challenge of bubbles is timing). Also, Kelly criterion uses odds received and probability of winning, and you don't have anything like that in the stock market, bubble or no bubble.
- khafra 16y agoThe Kelly Criterion is for making repeated bets on similar offered odds and probability of winning. Admittedly, it's harder to calculate your probability of winning in a stock market bubble than it is at the roulette wheel; but you can still do your best and use that number. If the rest wasn't clear, your offered odds are the delta in stock price minus the transaction costs.
- jsn 16y agoNeither the (future) stock price delta nor the probability of movement is known to you in advance.