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PERFORMANCE OF STOP-LOSS RULES VS. BUY-AND-HOLD STRATEGY

Yusupov, Garib and Snorrason, Bergsveinn (2009)
Department of Business Administration
Abstract
The purpose of this study is to investigate the performance of traditional stop-loss rules and
trailing stop-loss rules compared to the classic buy-and-hold strategy. The evaluation criteria of
whether stop-loss strategies can deliver better results are defined as return and volatility. The
study is conducted on daily equity returns data for stocks listed on the OMX Stockholm 30
Index during the time period between January 1998 and April 2009 divided into holding periods
of three months. We use the Efficient Market Hypothesis as the rule of thumb and choose an
arbitrary starting date for the holding periods. We test the performance of two types of stop-loss
strategies, trailing stop-loss and traditional stop-loss. Despite the... (More)
The purpose of this study is to investigate the performance of traditional stop-loss rules and
trailing stop-loss rules compared to the classic buy-and-hold strategy. The evaluation criteria of
whether stop-loss strategies can deliver better results are defined as return and volatility. The
study is conducted on daily equity returns data for stocks listed on the OMX Stockholm 30
Index during the time period between January 1998 and April 2009 divided into holding periods
of three months. We use the Efficient Market Hypothesis as the rule of thumb and choose an
arbitrary starting date for the holding periods. We test the performance of two types of stop-loss
strategies, trailing stop-loss and traditional stop-loss. Despite the methodological differences our
results are in line with previous research done by Kaminski and Lo (2007), where they find that
stop-loss strategies have a positive marginal impact on both expected returns and risk-adjusted
expected returns. In our research we find strong indications of the stop-loss strategies being able
to outperform the buy-and-hold portfolio strategy in both criteria. The empirical results indicate
that the stop-loss strategies can do better than the buy-and-hold even clearer cut when compared
in terms of the risk-adjusted returns. (Less)
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author
Yusupov, Garib and Snorrason, Bergsveinn
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Stop-loss, Trailing Stop-loss, Buy-and-Hold, Behavioral Finance, Strategy, Management of enterprises, Företagsledning, management
language
Swedish
id
1474565
date added to LUP
2009-06-04 00:00:00
date last changed
2012-04-02 17:49:03
@misc{1474565,
  abstract     = {The purpose of this study is to investigate the performance of traditional stop-loss rules and
trailing stop-loss rules compared to the classic buy-and-hold strategy. The evaluation criteria of
whether stop-loss strategies can deliver better results are defined as return and volatility. The
study is conducted on daily equity returns data for stocks listed on the OMX Stockholm 30
Index during the time period between January 1998 and April 2009 divided into holding periods
of three months. We use the Efficient Market Hypothesis as the rule of thumb and choose an
arbitrary starting date for the holding periods. We test the performance of two types of stop-loss
strategies, trailing stop-loss and traditional stop-loss. Despite the methodological differences our
results are in line with previous research done by Kaminski and Lo (2007), where they find that
stop-loss strategies have a positive marginal impact on both expected returns and risk-adjusted
expected returns. In our research we find strong indications of the stop-loss strategies being able
to outperform the buy-and-hold portfolio strategy in both criteria. The empirical results indicate
that the stop-loss strategies can do better than the buy-and-hold even clearer cut when compared
in terms of the risk-adjusted returns.},
  author       = {Yusupov, Garib and Snorrason, Bergsveinn},
  keyword      = {Stop-loss,Trailing Stop-loss,Buy-and-Hold,Behavioral Finance,Strategy,Management of enterprises,Företagsledning, management},
  language     = {swe},
  note         = {Student Paper},
  title        = {PERFORMANCE OF STOP-LOSS RULES VS. BUY-AND-HOLD STRATEGY},
  year         = {2009},
}