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Do stop-loss rules add value in international equity market allocation?

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  • Bochuan Dai
  • Ben R. Marshall
  • Nhut Hoang Nguyen
  • Nuttawat Visaltanachoti

Abstract

We consider the performance of stop-loss rules in international equity market allocation. Diversifying internationally gives the potential of larger returns but often involved higher risks, so it is a natural setting to consider these rules. Our results indicate that stop-loss rules, which involve closing positions that decline by a pre-specified percentage, are an important determinant of asset allocation in a parametric portfolio policy setting. 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.

Suggested Citation

  • Bochuan Dai & Ben R. Marshall & Nhut Hoang Nguyen & Nuttawat Visaltanachoti, 2022. "Do stop-loss rules add value in international equity market allocation?," Applied Economics, Taylor & Francis Journals, vol. 54(14), pages 1584-1597, March.
    • Handle: RePEc:taf:applec:v:54:y:2022:i:14:p:1584-1597
    DOI: 10.1080/00036846.2021.1980201
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