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

Andrew Clare, James Seaton, Peter Smith and Stephen Thomas ()
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Stephen Thomas: Cass Business School

Journal of Asset Management, 2013, vol. 14, issue 3, No 4, 182-194

Abstract: 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.

Keywords: trend following; S&P500; stop losses; trading frequency; higher moments; fundamental investment metrics (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (5)

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Working Paper: BREAKING INTO THE BLACKBOX: Trend Following, Stop Losses, and the Frequency of Trading: the case of the S&P500 (2012)
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DOI: 10.1057/jam.2013.11

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