Application of the Kelly Criterion on a Self-Financing Trading Portfolio -An empirical study on the Swedish stock market from 2005-2015

Abstract

A Kelly strategy theoretically optimizes the growth rate of investor’s capital. This paper evaluates its usefulness on the Swedish stock market between 2005 and 2015 by comparing returns to that of common portfolio strategies and a market index. We conclude that the Kelly strategy produces returns around five times that of the market for the same period. After conducting robustness tests, the results are less convincing.