Risk reduction using trailing stop-loss rules

摘要

We consider the effectiveness of trailing stop-loss rules which, unlike traditional stop-loss rules, involve the sale trigger price being moved higher to protect profits as prices rise. Our results indicate that while these rules have inferior mean returns to a mean-variance optimal benchmark, they are effective at stopping losses. The trailing stop-loss strategy reduces total risk and lessens downside risk, especially during declining market states. Transaction costs reduce the benefits of tighter stop-loss rules, but the rules with larger stop-loss thresholds remain useful after accounting for transaction costs.