The Value of Stop Loss Strategies：The Evidence from Taiwan Stock Market
Date Issued
2015
Date
2015
Author(s)
Lin, Sheng-Kai
Abstract
According to domestic and foreign researches, stop-loss strategies can prevent investors occurring disposition effect, that is holding their losing investments too long and selling the stocks which are winners early. However, the most important thing to investors is return. Therefore, this thesis examine whether stop-loss strategy can lead to higher return or reduce losses for investors. Different from the past research, this thesis uses all the stocks in Taiwan stock market from 2004 to 2014. To avoid the difference of volatility causes different degree of difficulties to reach the stop price, this thesis sets the stop price based on every stock’s daily return standard deviations. In order to prevent other factors making effects on the result, this thesis does not set any specific condition and signal to buy the stocks. In addition, this thesis uses regression to examine whether stock characteristics can affect the validity of stop-loss strategies. In the last we examine whether stop-loss strategy can reduce investment risk. The result shows that stop-loss strategies neither reduce the losses nor increase the return, and investors cannot judge the validity of stop-loss strategies by specific stock characteristic. However, stop-loss strategies are able to reduce investment risk for investors significantly, avoid investors having a huge loss in one investment.
Subjects
Stop-loss strategy
Disposition effect
Investment risk
Type
thesis