Skip Navigation

Review of Finance 2007 11(1):25-50; doi:10.1093/rof/rfm003
This Article
Right arrow Full Text
Right arrow Full Text (PDF)
Right arrow Alert me when this article is cited
Right arrow Alert me if a correction is posted
Services
Right arrow Email this article to a friend
Right arrow Similar articles in this journal
Right arrow Alert me to new issues of the journal
Right arrow Add to My Personal Archive
Right arrow Download to citation manager
Right arrowRequest Permissions
Google Scholar
Right arrow Articles by Lensberg, T.
Right arrow Articles by Schenk-Hoppé, K. R.
Right arrow Search for Related Content
Related Collections
Right arrow G11 - Portfolio Choice; Investment Decisions
Right arrow G12 - Asset Pricing; Trading volume; Bond Interest Rates
Right arrow C63 - Computational Techniques
Right arrow G31 - Capital Budgeting; Fixed Investment and Inventory Studies
Social Bookmarking
Add to CiteULike   Add to Connotea   Add to Del.icio.us  
What's this?

Copyright © The Author 2007. Published by Oxford University Press on behalf of the European Finance Association.

On the Evolution of Investment Strategies and the Kelly Rule—A Darwinian Approach*

Terje Lensberg1 and Klaus Reiner Schenk-Hoppé2

1 Norwegian School of Economics and Business Administration
2 University of Leeds

This paper complements theoretical studies on the Kelly rule in evolutionary finance by studying a Darwinian model of selection and reproduction in which the diversity of investment strategies is maintained through genetic programming. We find that investment strategies which optimize long-term performance can emerge in markets populated by unsophisticated investors. Regardless whether the market is complete or incomplete and whether states are i.i.d. or Markov, the Kelly rule is obtained as the asymptotic outcome. With price-dependent rather than just state-dependent investment strategies, the market portfolio plays an important role as a protection against severe losses in volatile markets.

JEL Classification: G11, G12, C63

* We are most grateful for helpful and constructive comments from an anonymous referee and from the editor, Peter Bossaerts. Thanks are also due to Jarle Møen for a helpful discussion. Financial support from Leeds University Business School and the National Centre of Competence in Research "Financial Valuation and Risk Management" is gratefully acknowledged.


Add to CiteULike CiteULike   Add to Connotea Connotea   Add to Del.icio.us Del.icio.us    What's this?




Disclaimer: Please note that abstracts for content published before 1996 were created through digital scanning and may therefore not exactly replicate the text of the original print issues. All efforts have been made to ensure accuracy, but the Publisher will not be held responsible for any remaining inaccuracies. If you require any further clarification, please contact our Customer Services Department.