OPTIMAL BET FRACTION DETERMINATION USING KELLY CRITERION IN STOCK INVESTMENT Case Study in LQ45 (Indonesia Stock Exchange)
Abstract
People tend to invest in the instrument which generate higher rate of return than inflation
rate. Capital market investment is growing rapidly in Indonesia as one of promising investment.
The Aggregate performance of capital market can be easily seen by its index (Jakarta Composite
Index). Many strategies are used to get return as much as possible. Thus, it encourage researcher
to do research on one of the money management strategies which is Kelly Criterion
Simulation stocks trading has been done to test Kelly Criterion stocks investment. Kelly
Criterion was tested in LQ45 stocks from year 2006 to 2014 and compared to constant betting
theory as the benchmark. The result is hypothesis, which is Kelly Criterion will give better
investment return than constant bet theory, are rejected.
The recommendations are to do more further research in Kelly Criterion using double
Kelly, half Kelly, and a quarter Kelly. Also to do research on different stocks market also. Last
importance recommendations is to do research to do the opposite of Kelly.