10
$\begingroup$

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.

$\endgroup$
  • 1
    $\begingroup$ Hi Siddharth, welcome to quant.SE and thanks for your question. I look forward to seeing you around. $\endgroup$ – Tal Fishman Jan 17 '12 at 15:08
  • $\begingroup$ @Siddharth: You can accept the answer if you are satisfied by it :-) $\endgroup$ – vonjd Jan 28 '13 at 16:01
11
$\begingroup$

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.

$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

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