Do Stop-loss Rules Add Value in International Equity Market Allocation?

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See all articles by Bochuan Dai

Bochuan Dai

Massey University - School of Economics and Finance

Ben R. Marshall

Massey University - School of Economics and Finance

Nhut H. Nguyen

Auckland University of Technology

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance

Date Written: July 21, 2020

Abstract

We consider the performance of stop-loss rules in international equity market allocation. Our results indicate that stop-loss rules, which involve closing positions that decline by a pre-specified percentage, are important determinants in the parametric portfolio policy. They generate portfolios that have superior mean and risk-adjusted returns for investors. This result holds in general but is economically stronger in declining markets. The outperformance is robust to the inclusion of transaction costs.

Keywords: Asset Allocation, Stop-Loss Rule

JEL Classification: G11, G12

Suggested Citation

Dai, Bochuan and Marshall, Ben R. and Nguyen, Nhut H. and Visaltanachoti, Nuttawat, Do Stop-loss Rules Add Value in International Equity Market Allocation? (July 21, 2020). Available at SSRN: https://ssrn.com/abstract=

Bochuan Dai (Contact Author)

Massey University - School of Economics and Finance ( email )

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Ben R. Marshall

Massey University - School of Economics and Finance ( email )

Private Bag 11-222
Palmerston North, 30974
New Zealand
64 6 350 5799 (Phone)
64 6 350 5651 (Fax)

Nhut H. Nguyen

Auckland University of Technology ( email )

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Auckland, Auckland 1010
New Zealand
+64 9 921 9999 (Phone)

Nuttawat Visaltanachoti

Massey University - Department of Economics and Finance ( email )

School of Economics and Finance
Private Bag 102904, NSMC
Auckland
New Zealand
64 9 414 0800 (43169) (Phone)
64 9 441 8177 (Fax)

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