Information efficiency in investment

Thomas M. Cover, Elza Erkip

Research output: Contribution to conferencePaper

Abstract

We answer the question, what should we say about V when we want to gamble on X, and what is it worth? If V = X, we show that every bit of description at rate R is worth a bit of increase Δ(R) in the doubling rate. Thus the efficiency Δ(R)/R is equal to 1. For general V, we provide a single letter characterization for Δ(R). When applied specifically to jointly normal (V,X) with correlation ρ, we find the initial efficiency Δ′ (0) is ρ2. If V and X are Bernoulli random variables connected by a binary symmetric channel with parameter p, the initial efficiency is (1 - 2p)2. We finally show how much increase in doubling rate is possible when the sender can provide R bits of information about V and side information S is available only to the investor.

Original languageEnglish (US)
Number of pages1
StatePublished - 1995
EventProceedings of the 1995 IEEE International Symposium on Information Theory - Whistler, BC, Can
Duration: Sep 17 1995Sep 22 1995

Other

OtherProceedings of the 1995 IEEE International Symposium on Information Theory
CityWhistler, BC, Can
Period9/17/959/22/95

ASJC Scopus subject areas

  • Theoretical Computer Science
  • Information Systems
  • Modeling and Simulation
  • Applied Mathematics

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