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Dollar Cost Averaging 28012015.pdf

🔗 Source: openaccess.city.ac.uk

📊 Size: 274 KB

👤 Author: Neil Stewart

⬇️ Downloads: 170

Summary

Dollar Cost Averaging (DCA) is a strategy of buying assets gradually over time in equal dollar amounts, rather than buying the desired total immediately. Despite being mean-variance inefficient, DCA remains popular, with proponents arguing it automatically purchases more securities when the price is lower, achieving an average purchase cost below the average market price. However, this argument is flawed because the quantity of shares bought is not fixed in advance, making it misleading to compare DCA's average cost with the average market price. The paper demonstrates that DCA is sub-optimal regardless of preferences over terminal wealth and identifies the cognitive error in the argument, providing a simpler explanation for DCA's continued popularity: investors are making a mistake when assessing the benefits of DCA, which may be detrimental to them.

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Description

Dollar Cost Averaging (DCA) is a strategy of buying assets gradually over time in equal dollar amounts, rather than buying the desired total immediately.

Technical Information

File Format: PDF
File Size: 274 KB
Pages: 29
Language: EN
Author: Neil Stewart
Total Downloads: 170
Last Updated: 2 weeks ago

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