Risk and return of a trend-chasing application in financial markets: an empirical test

Jukka Ilomäki

Risk Management, 2018, vol. 20, issue 3, No 3, 258-272

Abstract: Abstract The paper introduces an application of the moving average trend-chasing rule that effectively reduces the risk of portfolios. The results are fairly robust: all our moving average lags produce about 36% (34%) less Value-at-Risk and about 31% (30%) less expected shortfall without giving up any returns on average after transaction costs compared to the buy-and-hold strategy, calculated in local currencies (in U.S. dollars). In addition, the paper finds that the volatility of returns follows a similar pattern by producing on average 29% (30%) less volatility in local currencies (in U.S. dollars). Moreover, the CAPM betas of the trading rule are significantly lower (50%) than in the buy-and-hold strategy.

Keywords: Value-at-Risk; Expected shortfall; Volatility; Investment decision; Stock returns (search for similar items in EconPapers)
JEL-codes: G02 G11 G32 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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DOI: 10.1057/s41283-018-0036-1

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