Research papers

Discussions about Money Management and Risk Control.
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enigma
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Research papers

Post by enigma » Wed May 14, 2003 11:57 am

Does anyone know of any sound academia research papers on money management and position sizing? Most of position sizing literature seems to come from books written by practitioners or trading system developers.

Since position sizing is deemed to be very important for traders, it is suprising that the topic have not caught the eyes of academics ... or is it because they view money management as part of modern portfolio theory? Or are the maths too simple for those quant types?

Howard Brazzil
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Post by Howard Brazzil » Wed May 14, 2003 2:12 pm

Hi enigma,

Much of academic finance deals with portfolios of assets that are bought and held, or the selection
of securities that may comprise an asset class; managed futures would typically be represented as
a single asset stream that is held as part of a larger portfolio.

Studying the bet-sizing routines used within the confines of a futures program which trades frequently
(by their standards), and which makes outright, unhedged directional bets in a manner that reeks of
market-timing, is not the typical academic cup of tea.

There was a Master's Thesis on the topic some time back, from a fellow at Uppsala University in Sweden
("Position-sizing Effects on Trader Performance: An experimental analysis"), that studied the topic
in the general sense by giving participants a fictitious sum of money to trade. The researcher found that
the treatment group, which received a short course on position sizing and trading psychology prior to the
trading portion of the experiment, went broke far less frequently, and at a slower rate, than did the
uneducated control group.

Van Tharp's Trade Your Way to Financial Freedom provides a very good primer on the topic.
You may also find his Special Report on Money Management helpful, as well.

Before I had good backtesting software, I derived the most benefit by reading Dr. Tharp's snowball and
marble examples in TYWtFF, and coding them up in Basic, and later in Excel, and studying what happens
to the equity, and to the risk-adjusted return stats, when you fiddle with various parameter values.
That's still probably the best place to start.

Hope this helps.

- Howard

Moodaeng
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Post by Moodaeng » Thu May 15, 2003 4:27 am

the best papers I've found come from the "gambling" literature. A pioneer in the field is Ed Thorp. Take a look at www.bjmath.com great site.

enigma
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Post by enigma » Thu May 15, 2003 11:20 am

great site Moodaeng ... thanks! :D

rs

Post by rs » Sun May 18, 2003 9:52 am

I agree...excellent site Moodaeng.

Thanks

rs

Jester

Post by Jester » Mon Jun 23, 2003 2:47 pm

Killer site. Thanks for the info!
Jester
:P

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