When do stop-loss rules stop losses?
Name
Lo_When Do Stop-Loss.pdf
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417.03 KB
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Checksum (MD5)
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Author(s)
Kaminski, Kathryn M.
Lo, Andrew W
Date Issued
July 2013
Journal
Journal of Financial Markets
Publisher
Elsevier
Citation
Kaminski, Kathryn M., and Andrew W. Lo. “When Do Stop-Loss Rules Stop Losses?” Journal of Financial Markets 18 (March 2014): 234–254 © 2013 Elsevier B.V.
Version
Original manuscript
Abstract
We propose a simple analytical framework to measure the value added or subtracted by stop-loss rules-predetermined policies that reduce a portfolio's exposure after reaching a certain threshold of cumulative losses-on the expected return and volatility of an arbitrary portfolio strategy. Using daily futures price data, we provide an empirical analysis of stop-loss policies applied to a buy-and-hold strategy using index futures contracts. At longer sampling frequencies, certain stop-loss policies can increase expected return while substantially reducing volatility, consistent with their objectives in practical applications. Keywords: Investments; Portfolio management; Risk management; Asset allocation; Performance attribution; Behavioral finance
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1016/J.FINMAR.2013.07.001
