Taming Momentum Crashes : A Simple Stop-Loss Strategy

In this paper, we propose a stop-loss strategy to limit the downside risk of the well-known momentum strategy. At a stop-level of 10%, we find, with data from January 1926 to December 2013, that the maximum monthly losses of the equal- and value-weighted momentum strategies go down from -49.79% to -11.36% and from -64.97% to -23.28%, while the Sharpe ratios are more than doubled at the same time. We also provide a general equilibrium model of stop-loss traders and non-stop traders and show that the market price differs from the price in the case of no stop-loss traders by a barrier option

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Year of publication:	2016
Authors:	Han, Yufeng
Other Persons:	Zhou, Guofu (contributor) ; Zhu, Yingzi (contributor)
Publisher:	[2016]: [S.l.] : SSRN
Subject:	Portfolio-Management \| Portfolio selection \| Anlageverhalten \| Behavioural finance \| Finanzkrise \| Financial crisis \| Theorie \| Theory \| Wertpapierhandel \| Securities trading \| Volatilität \| Volatility \| Kapitaleinkommen \| Capital income \| Strategie \| Strategy \| Strategisches Management \| Strategic management \| Risikomanagement \| Risk management

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