Do Stop-loss Rules Add Value in International Equity Market Allocation?
31 Pages Posted: 29 Sep 2020 Last revised: 17 Dec 2020
Date Written: July 15, 2020
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 out-performance is robust to the inclusion of transaction costs.
Keywords: Asset Allocation, Stop-Loss Rule
JEL Classification: G11, G12
Suggested Citation: Suggested Citation