Purpose
The literature has demonstrated that lump-sum (LS) outperforms dollar-cost averaging (DCA) in uptrend markets while DCA outperforms LS only when the asset price is mean-reverted or downtrend. To bridge the gap in the literature, this study aims to use both Sharpe ratio (SR) and economic performance measure (EPM) to compare the performance of DCA and LS under both accumulative and disaccumulative approaches when the asset price is simulated to be uptrend.
Design/methodology/approach
This study uses both disaccumulative and accumulative approaches to compare DCA with LS and uses both SR and EPM to evaluate their performance when the asset price is simulated to be uptrend. Instead of using the annualized returns that are commonly used by other DCA studies, we compute the holding-period returns in the comparison in this paper.
Findings
The simulation shows that no matter which approach is used, DCA outperforms LS in nearly all the cases in the less uptrend markets while DCA still performs better than LS in many cases of the uptrend markets, especially when the market is more volatile and investment horizon is long, regardless which approach the authors used. The authors also find more evidence supporting DCA over LS by using EPM, which is more suitable in the analysis because the returns generated by DCA are positive skewed and flat-tailed that are ignored when SR is used.
Research limitations/implications
The authors conclude that DCA is a better trading strategy than LS for investment even in the uptrend market, especially on high risky assets.
Practical implications
Investors could consider choosing DCA instead of LS as their trading strategy, especially when they prefer long term investment and investing in high-risk assets.
Social implications
Fund managers could consider recommending DCA to their customers, especially when they prefer long term investment and investing in high-risk assets.
Originality/value
This is the own study and, as far as the authors know, this is the first study in the literature uses both SR and EPM to compare the performance of DCA and LS under both accumulative and disaccumulative approaches when the asset price is simulated to be uptrend.
This paper empirically studies the differences among the systematic risks of three asset pricing models, namely; the mean–variance capital asset pricing model (MV‐CAPM), AS‐CAPM and FH‐CAPM. The last two are derived by replacing variance with the Aumann‐Serrano (AS) index and the Foster‐Hart (FH) as the risk measure in MV‐CAPM. We use the Dow Jones Industrial Average (DJIA) index as a proxy for the market portfolio, and its component stocks to check if the systematic risks and the Treynor measures are different. The monthly return data from January 1997 to October 2017 are used for empirical estimations. The results show that the three systematic risks are highly correlated. Similarly, high correlation is also found for the three Treynor measures. It seems that even though they are derived under different risk measures, they produce almost the same systematic risk and performance measure for individual stocks. Therefore the findings of the present study suggest that any of the above measures can be used in empirical finance in the area of risk management. As this finding is different from those of other studies in the existing literature in this area, this study makes a contribution to the finance literature.
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