Dynamic stop-loss rules as universal performance enhancers

  • 1437 Views
  • 665 Downloads

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

This paper provides ample empirical evidence, using US equity and bond indices, why daily stop-loss rules can be considered as viable performance enhancers. While a longer-term stop-loss rule can help investors to avoid market crashes by being out of the market, investors may obviously lose on the up-market days too. Furthermore, a shorter-term stop-loss rule may not miss the good market days by allowing investors to stay for a longer time in the market at the obvious expense of increased risk and higher drawdowns. This paper illustrates how daily stop-loss rules can significantly outperform the buy and hold equity and bond benchmarks, their equally weighted portfolio and the trend following strategy, simple moving average, which is driven from those asset classes – for both long and short positions. The results are robust to a variety of variations on the initial theme and it’s shown that performance enhancements can come from a variety of other sources related to a static stop-loss rule.

view full abstract hide full abstract
    • Figures 1-4. Cumulative return and maximum drawdown January 1, 2004 – October 13, 2015
    • Figures 5-8. Cumulative return and maximum drawdown January 1, 2004 – October 13, 2015
    • Figures 9-10. Cumulative return and maximum drawdown January 1, 2004 – October 13, 2015
    • Figures 11-12. SPY-SMA cumulative return and maximum drawdown January 1, 2004 – October 13, 2015
    • Figures 13-14. TLT-SMA cumulative return and maximum drawdown January 1, 2004 – October 13, 2015
    • Table 1. SPY summary statistics with daily stop loss January 1, 2004 – October 13, 2015
    • Table 2. TLT summary statistics with daily stop loss January 1, 2004 – October 13, 2015
    • Table 3. Summary statistics of SPY-TLT equal weight portfolio with daily stop loss January 1, 2004 – October 13, 2015
    • Table 4. Summary statistics of SPY-SMA with daily stop loss January 1, 2004 – October 13, 2015
    • Table 5. Yearly return of SPY-SMA with daily stop loss January 1, 2004 – October 13, 2015
    • Table 6. Summary statistics of TLT-SMA with daily stop loss January 1, 2004 – October 13, 2015
    • Table 7. Yearly return of TLT-SMA with daily stop loss January 1, 2004 – October 13, 2015
Related Articles

  • The risk management practices in the manufacturing SMEs in Cape Town

    Clinton Mbuyiselo Sifumba , Kevin Boitshoko Mothibi , Anthony Ezeonwuka , Siphesande Qeke , Mamorena Lucia Matsoso doi: http://dx.doi.org/10.21511/ppm.15(2-2).2017.08
    Problems and Perspectives in Management Volume 15, 2017         Issue #2 (cont. 2)         pp. 386-403 Views: 3427 Downloads: 542 TO CITE АНОТАЦІЯ

    Risk management is one of the prominent issues which are pivotal to the success of a business and may adversely affect profitability if not properly practised. Therefore, the main objective of this paper was to determine risk management practices in manufacturing SMEs in Cape Town. The research conducted was quantitative in nature and constituted the collection of data from 74 SME leaders, all of whom had to adhere to a list of strict delineation criteria. All data collected were thoroughly analyzed through means of descriptive statistics. From the findings made, it is clear that SMEs in the manufacturing sector do in fact understand risk management initiatives applicable to ‘manage’ their respective businesses towards sustainability, but not to a large extent. It was found that respondents are unaware of the elements which make risk management effective, which ultimately aids to the development of problems for SMEs. All employees, managers and owners must coordinate their efforts together to identify and manage organizational risks within their ambit to obtain total risk coverage, as well as provide assurance that these risks are effectively managed from a coordinated approach. Further studies may be carried out to identify measures that can be taken to improve the effectiveness of risk management practices in SMEs.

  • Integration of enterprise risk management and management control system: based on a case study

    Ilhang ShinORCID , Sorah ParkORCID doi: http://dx.doi.org/10.21511/imfi.14(1).2017.02
    Investment Management and Financial Innovations Volume 14, 2017         Issue #1         pp. 19-26 Views: 2032 Downloads: 1984 TO CITE АНОТАЦІЯ

    This paper aims to discuss the concepts and methodological issues of enterprise risk management (ERM). The case study of company A shows that ERM has been implemented and integrated with management control as a means of monitoring its subsidiaries. First, ERM system was implemented through comprehensive review of corporate risk policies, risk management processes, roles and responsibilities, and risk culture. Second, company A integrated ERM with the existing management control system in order to evaluate the risk underlying the current management activities. Finally, ERM implementation was expanded to all subsidiaries so that each business unit would be delegated for its own risk management. This paper provides insight on the process how group-level internal auditors can use ERM as a tool to manage risk of subsidiaries, thereby filling the gap between academic research and practice. This successful ERM adoption case can be used as a guideline for other organizations, which plan to adopt ERM with reduced costs and improved processes.

  • The determinants of liquidity risk of commercial banks in Vietnam

    Tu T. T. TranORCID , Yen T. Nguyen , Thuy T.H. NguyenORCID , Long Tran doi: http://dx.doi.org/10.21511/bbs.14(1).2019.09
    Banks and Bank Systems Volume 14, 2019         Issue #1         pp. 94-110 Views: 2018 Downloads: 1205 TO CITE АНОТАЦІЯ

    This research identifies factors that explain the liquidity of commercial banks in the Vietnam banking system from 2010 to 2015. Using the OLS regression method for analysis, it was found that:

    1. the interbank market helps commercial banks improve their liquidity;
    2. the larger the loan size, the higher the liquidity risk;
    3. good credit risk management has a positive impact on liquidity risk management; and
    4. long-term interest rate is negatively related to the liquidity of commercial banks.

    The research also makes recommendations on liquidity risk management policies to banks and policy-makers from the Government and the State Bank of Vietnam.

Download Preview
Close
Investment Management and Financial Innovations
Investment Management and Financial Innovations