Vol. 19, No. 3, 2021
Atanu Saha and Yong Xu
We propose a simple, hindsight-free, rule-based method of entry and exit into the stock market, with the goal of improving returns by averting large losses. Using data from 1928 through March 2020, we demonstrate that the proposed strategy delivers statistically signiﬁcant outperformance over the S&P 500 total return index. Several robustness checks, including a Monte Carlo analysis, conﬁrm the strategy’s outperformance in various sub-sample periods and investment horizons. These results hold after accounting for reasonable transaction costs for in and out trades. The strategy’s outperformance is explained by the non-normality and asymmetric persistence of market returns.