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Return
Target Return Strategy
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DOI：10.1111/fire.70006.png)
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Abstract
En 中文
We study the target return strategy (TRS), which exits the market once the return reaches a preset target. We show that the holding-period return (HPR) cannot mean-variance dominate TRS, but TRS can mean-variance dominate HPR. We theoretically analyze TRS and quantitatively illustrate that training targets by a mean-variance utility optimization algorithm based on recent HPRs and peak returns can improve welfare. By exiting at targets, TRS preempts potential price reversals, manages investment risk, enhances risk-return profiles, and encourages market participation. TRS justifies the use of price-contingent orders, explains the disposition effect, and questions market efficiency.
Keywords:
investment
target return
trading strategy
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