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Article

Assessing Stop-Loss and Re-Entry Strategies

Joachim Klement
The Journal of Trading Fall 2013, 8 (4) 44-53; DOI: https://doi.org/10.3905/jot.2013.8.4.044
Joachim Klement
is a chief investment officer at Wellershoff & Partners Ltd. in Zurich, Switzerland.
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  • For correspondence: joachim.klement@wellershoff.ch
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Abstract

Many practitioners use stop-loss strategies to limit excessive losses on existing investments. In practice, however, the value of stop-losses can be assessed only when re-entry rules are considered jointly with stop-loss rules. In this article, we analyze the benefits of joint stop-loss and re-entry rules from the perspective of both risk reduction and return enhancement for six different global equity markets, as well as for listed real estate investments, a commodity index, and gold. We find that stop-loss rules significantly reduce volatility and excessive losses. The evidence on return enhancement, however, is mixed, with stop-losses increasing absolute and risk-adjusted returns for most equity markets and listed real estate but not for commodity indexes or gold. We also find significant differences between secular bull and bear markets, with stop-loss and re-entry rules providing higher risk-adjusted returns during secular bear markets but not during bull markets.

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The Journal of Trading: 8 (4)
The Journal of Trading
Vol. 8, Issue 4
Fall 2013
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Assessing Stop-Loss and Re-Entry Strategies
Joachim Klement
The Journal of Trading Sep 2013, 8 (4) 44-53; DOI: 10.3905/jot.2013.8.4.044

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Assessing Stop-Loss and Re-Entry Strategies
Joachim Klement
The Journal of Trading Sep 2013, 8 (4) 44-53; DOI: 10.3905/jot.2013.8.4.044
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