Figure 3

Contributions to cumulative return due to the long and short decisions of the adaptive strategy. When quantifying the contribution of long decisions, we implement the adaptive strategy in such a way that we execute long decisions when recommended but never execute short decisions. Conversely, when evaluating the contribution of short decisions, we take short decisions only but never take long decisions. (a) Cumulative return (left axis) for long only and short only decisions and the DJIA (right axis). (b) The KDE of the returns in overlapping eight-week windows, obtained by long only and and short only decisions. The long decisions generate smaller but more steady returns, compared to the short decisions. The short decisions are better at dealing with the four sustained market downturns illustrated by the blue bars in (a), which correspond to the Global Financial Crisis in 2008, the European Debt Crisis in 2010 and 2011, and the 2015 stock market selloff.