Lottery stocks and stop-loss rules

Bochuan Dai, Ben R. Marshall, Nhut H. Nguyen and Nuttawat Visaltanachoti

Global Finance Journal, 2023, vol. 56, issue C

Abstract: We show that stop-loss rules increase the returns to investment in stocks with lottery features. These stocks typically have sporadic big gains and frequent small losses. However, stop-loss rules can reduce losses and allow investors to receive the gains from large price increases. We also highlight that sell signals of popular technical rules resemble stop-loss rules and are effective at increasing risk-adjusted returns for lottery stock. These rules could have helped investors avoid losses from major historical drawdowns, are particularly beneficial in declining markets, and are robust to the inclusion of transaction costs.

Keywords: Lottery stocks; Stop-loss rules; Trading strategies (search for similar items in EconPapers)
JEL-codes: G11 G12 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:glofin:v:56:y:2023:i:c:s1044028322000503

DOI: 10.1016/j.gfj.2022.100748

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