We showed in Chapter 6 that side information Y for the horse race X can be used to increase the growth rate by the mutual information I(X;Y). We now extend this result to the stock market.

Here, I(X;Y) is an upper bound on the increase in the growth rate, with equality if X is a horse race. We first consider the decrease in growth rate incurred by believing in the wrong distribution.

Thomas A. Cover & Joy A. Thomas, Elements of Information Theory


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