Re-Examining the Hidden Costs of the Stop-Loss

31 Pages Posted: 22 Apr 2008  

Wilson Ma

Verus

Guy Morita

University of Washington - Michael G. Foster School of Business

Kira Detko

University of Washington - Michael G. Foster School of Business

Date Written: 04/10/2008

Abstract

In this paper, we present general implications of the impact of stop-losses to future returns. The use of stop-losses change return distributions, but not in the way that one would typically expect. We find that while stop-losses can reduce position volatility, hidden costs offset perceived benefits in terms of altering future returns. Use of both stop-losses and profit-taking stops separately or in conjunction offer no statistically significant difference in expected return but have a meaningful impact in returns with drift, as the expected return converges to that of the underlying.

Keywords: stop-loss, stoploss, hidden costs, hiddencosts, costs, benefits, risk, wilson ma, kira detko, guy morita

Suggested Citation

Ma, Wilson and Morita, Guy and Detko, Kira, Re-Examining the Hidden Costs of the Stop-Loss (04/10/2008). Available at SSRN: https://ssrn.com/abstract=1123362 or http://dx.doi.org/10.2139/ssrn.1123362

Wilson Ma (Contact Author)

Verus ( email )

999 Third Avenue Suite 4200
Seattle, WA 98104
United States

Guy Morita

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

Kira Detko

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States

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