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Target Return Strategy

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  • Ying Xue
  • Zheng Wen
  • Xu Jiang

Abstract

We study the target return strategy (TRS), which exits the market once the return reaches a preset target. We show that the holding‐period return (HPR) cannot mean‐variance dominate TRS, but TRS can mean‐variance dominate HPR. We theoretically analyze TRS and quantitatively illustrate that training targets by a mean‐variance utility optimization algorithm based on recent HPRs and peak returns can improve welfare. By exiting at targets, TRS preempts potential price reversals, manages investment risk, enhances risk‐return profiles, and encourages market participation. TRS justifies the use of price‐contingent orders, explains the disposition effect, and questions market efficiency.

Suggested Citation

  • Ying Xue & Zheng Wen & Xu Jiang, 2025. "Target Return Strategy," The Financial Review, Eastern Finance Association, vol. 60(4), pages 1483-1503, November.
    • Handle: RePEc:bla:finrev:v:60:y:2025:i:4:p:1483-1503
    DOI: 10.1111/fire.70006
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