Assessing Stop-loss and Re-entry Strategies

Wellershoff & Partners Ltd

Joachim Klement

Research

36 Pages

Wellershoff & Partners evaluates whether combining stop loss rules with disciplined re entry strategies can improve investment outcomes across global asset classes. While stop losses consistently reduce volatility, return benefits are mixed, with stronger results in equities than commodities or gold and greater effectiveness during secular bear markets.

 

Key Takeaways

Volatility Reduced: Stop loss rules significantly lowered volatility across all 9 asset classes, with statistical significance at p < 0.001, particularly for UK equities, emerging markets, and US REITs.
Returns Depend: A 12 month out, 3 month in strategy produced the strongest results, improving risk adjusted returns by 1% to 3% annually for several developed equity markets and US REITs.
Bear Market Edge: Stop loss strategies added the most value during secular bear markets, while emerging markets, commodities, and gold generally failed to outperform buy and hold in both market regimes.
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