Breaking into the blackbox: Trend following, stop losses and the frequency of trading - The case of the S&P500

Clare, A., Seaton, J., Smith, P. N. & Thomas, S. (2013). Breaking into the blackbox: Trend following, stop losses and the frequency of trading - The case of the S&P500. Journal of Asset Management, 14(3), pp. 182-194. doi: 10.1057/jam.2013.11

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Abstract

In this article, we compare a variety of technical trading rules in the context of investing in the S&P500 index. These rules are increasingly popular, both among retail investors and CTAs and similar investment funds. We find that a range of fairly simple rules, including the popular 200-day moving average (MA) trading rule, dominate the long-only, passive investment in the index. In particular, using the latter rule we find that popular stop-loss rules do not add value and that monthly end-of-month investment decision rules are superior to those which trade more frequently: this adds to the growing view that trading can damage your wealth. Finally, we compare the MA rule with a variety of simple fundamental metrics and find the latter far inferior to the technical rules over the last 60 years of investing.

Item Type: Article
Additional Information: The final publication is available at Springer via http://dx.doi.org/10.1057/jam.2013.11
Uncontrolled Keywords: trend following, S&P500, stop losses, trading frequency, higher moments, fundamental investment metrics
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/17842

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