Date of Award:

5-2022

Document Type:

Thesis

Degree Name:

Master of Science (MS)

Department:

Economics and Finance

Committee Chair(s)

Todd Griffith (Committee Co-Chair), Man Keun Kim (Committee Co-Chair)

Committee

Todd Griffith

Committee

Man Keun Kim

Committee

Ryan Bosworth

Committee

Tanner McCarty

Abstract

Like gamblers, retail investors seeking excess returns in financial markets are prone to miscalculation and their models are often misspeciffied. Forecasting asset prices is extremely difficult in the long run and nearly infeasible in the short run. Additionally, retail investors are likely to be at a disadvantage both technologically and informationally—rarely will they be ahead of the curve. With these disadvantages and the difficulty of predicting future outcomes, retail investors may come to view prices as unpredictable and random in nature, like a roll of the dice. This theoretical research explores a possible investing methodology (derived from gambling principles) should an investor choose to accept asset prices as random. It displays the possibility that investors can harness the power of compound returns if they possess statistically advantageous strategies, and if they trade as frequently as possible. This research then continues to exhibit investors can reduce their risk while simultaneously increasing their expected returns should they successfully follow this theoretical framework.

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