Take the 2-minute tour ×
Quantitative Finance Stack Exchange is a question and answer site for finance professionals and academics. It's 100% free, no registration required.

Has there been any rigorous study on stop loss ? When to apply it?

Has it been shown to work through proper statistical backtests?

I am interested in Equities, preferably European stocks.

share|improve this question
1  
Hi Siddharth, welcome to quant.SE and thanks for your question. I look forward to seeing you around. –  Tal Fishman Jan 17 '12 at 15:08
    
@Siddharth: You can accept the answer if you are satisfied by it :-) –  vonjd Jan 28 '13 at 16:01
add comment

1 Answer

I find this one very helpful:

Re-Examining the Hidden Costs of the Stop-Loss by Wilson Ma, Guy Morita, Kira Detko

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.

share|improve this answer
add comment

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.