Course: Money and Risk Management
Lesson Insights
Ralph Vince is an American financial engineer and author who is known for his work in portfolio management and trading strategies. He conducted an experiment to determine the effect of position sizing on the returns of a portfolio. The experiment aimed to find a relationship between the size of the investment and the risk involved, as well as to determine the ideal size of a trade.
The experiment involved making trades using a fixed fractional position sizing method, where the position size was determined as a fixed percentage of the portfolio's equity. The results showed that the returns were directly proportional to the size of the investment, and that using a fixed fractional position sizing method reduced the risk involved and improved the overall performance of the portfolio.
Ralph Vince's experiment highlights the importance of position sizing in trading and investing and has been influential in shaping the modern portfolio management theory. This experiment is described in this lesson.
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