Abstract

http://ssrn.com/abstract=2126476
 
 

References (26)



 


 



Breaking into the Blackbox: Trend Following, Stop Losses, and the Frequency of Trading: The Case of the S&P500


Steve Thomas


City University London - Sir John Cass Business School

James Seaton


City University London - Sir John Cass Business School

Andrew Clare


City University London - Sir John Cass Business School

Peter N. Smith


University of York (UK) - Department of Economics and Related Studies; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

March 10, 2012


Abstract:     
In this paper we compare a variety of technical trading rules in the context of investing in the S&P500 index. These rules are increasingly popular both among retail investors and CTAs and similar investment funds. We find that a range of fairly simple rules, including the popular 200-day moving average trading rule, dominate the long only, passive investment in the index. In particular, using the latter rule we find that popular stop loss rules do not add value and that monthly end of month investment decision rules are superior to those which trade more frequently: this adds to the growing view that trading can damage your wealth. Finally we compare the MA rule with a variety of simple fundamental metrics and find the latter far inferior to the technical rules over the last 60 years of investing.

Number of Pages in PDF File: 19

Keywords: trend following, S&P500, stop losses, trading frequency, fundamental investment metrics

JEL Classification: G10, G11, G12

working papers series


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Date posted: August 8, 2012  

Suggested Citation

Thomas, Steve and Seaton, James and Clare, Andrew and Smith, Peter N., Breaking into the Blackbox: Trend Following, Stop Losses, and the Frequency of Trading: The Case of the S&P500 (March 10, 2012). Available at SSRN: http://ssrn.com/abstract=2126476 or http://dx.doi.org/10.2139/ssrn.2126476

Contact Information

Stephen H. Thomas (Contact Author)
City University London - Sir John Cass Business School ( email )
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
+44 (0) 20 7040 5271 (Phone)
+44 (0) 20 7040 8881 (Fax)
James Seaton
City University London - Sir John Cass Business School ( email )
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
Andrew D. Clare
City University London - Sir John Cass Business School ( email )
106 Bunhill Row
London, EC1Y 8TZ
United Kingdom
Peter N. Smith
University of York (UK) - Department of Economics and Related Studies ( email )
Heslington
York 010 5DD
United Kingdom
+44 1904 433 765 (Phone)
+44 1904 433 759 (Fax)
Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )
ANU College of Business and Economics
Canberra, Australian Capital Territory 0200
Australia
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