Technical trading rules, loss avoidance, and the business cycle

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Date
2023-12
Open Access Location
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier B V
Rights
(c) 2023 The Author/s
CC BY 4.0
Abstract
We show that simple technical trading rule (TTR) strategies substantially reduce investment left tail risk. An investor following a TTR strategy can also avoid a high percentage of extremely negative returns. This percentage increases substantially during recessions. Interestingly, tail risk reduction does not come at a cost of lower performance – risk adjusted returns of TTR strategies are in fact higher than those of a buy-and-hold strategy. Our findings are robust to changes in trading strategy specifications. They hold in 38 international equity markets, as well as in a large sample of individual US stocks, and survive a reality check bootstrap.
Description
Keywords
Tail risk, Technical trading rules, Loss avoidance
Citation
Ergun L, Molchanov A, Stork P. (2023). Technical trading rules, loss avoidance, and the business cycle. Pacific Basin Finance Journal. 82.
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