Dollar-Cost Averaging, Asset Allocation, and Lump Sum Investing

Panyagometh, Kamphol; Zhu, Kevin X.

doi:10.3905/jwm.2016.18.4.075

Cited by 7 publications

(6 citation statements)

References 28 publications

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“…DCA and LS investment strategies are two of the most popular investment strategies that many academics and practitioners are interested in checking which strategy is better. Many studies, for example, Knight and Mandell (1992/1993), Williams and Bacon (1993), Rozeff (1994), Thorley (1995) and Panyagometh and Zhu (2016) have shown that LS outperforms DCA. On the other hand, Brennan et al (2005) found that DCA performs better than LS when the underlying asset prices follow a mean reverting process while Greenhut (2006) found that DCA is better than LS when the markets are trending downward.…”

Section: Discussionmentioning

confidence: 99%

“…Our finding that the volatilities of DCA are smaller than those of LS over the horizons in all market scenarios because, different from LS, DCA shifts to risky investment gradually. As Panyagometh and Zhu (2016) pointed out, DCA is approximately equivalent to an AA strategy with 50% to 65% of the wealth being invested in risky assets.…”

Section: Findings From Simulationmentioning

confidence: 99%

“…Though DCA is one of the most popular investment strategies, it has been documented in the literature that it cannot get good performance. For example, Knight and Mandell (1992/1993), Williams and Bacon (1993), Rozeff (1994), Thorley (1995) and Panyagometh and Zhu (2016) have shown that LS outperforms DCA. Among them, Knight and Mandell (1992, 1993) demonstrated that the buy-and-hold strategy outperforms DCA in their analysis by using graphical analysis on both real-life stock market data and Monte Carlo simulation.…”

Section: Introductionmentioning

confidence: 99%

“…Nonetheless, comparing investment between stocks and bonds by using DCA in the US markets from 1926 to 1995, Vora and McGinnis (2000) found that retirees would have consistently done better by investing in stocks as opposed to bonds. Panyagometh and Zhu (2016) demonstrated that DCA is approximately equivalent to an asset allocation strategy (AA) with 50% to 65% of wealth is invested in risky assets because both strategies end up about the same expected terminal wealth. They found that DCA has higher risk, as measured by standard deviation, resulting lower Sharpe ratios (SR).…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Do lump-sum investing strategies really outperform dollar-cost averaging strategies?

Hoang

Wong

2020

SEF

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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.

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Section: Discussionmentioning

confidence: 99%

Section: Findings From Simulationmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Do lump-sum investing strategies really outperform dollar-cost averaging strategies?

Hoang

Wong

2020

SEF

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show abstract

“…Bierman and Hass (2004) illustrate that if the cash fund is currently available, the optimum decision is to invest the entire sum, and dividing the initial sum into segments for future investment is not recommended. Panyagometh and Zhu (2016) demonstrate that the DCA is analogous to the AA strategy in which about 50% to 65% of total wealth is invested in risky assets once at the beginning and the rest in riskless assets. They find that the AA strategy has a better risk-return tradeoff than the DCA.…”

Section: Introductionmentioning

confidence: 95%

Does Market Timing Beat Dollar Cost Averaging?

Wang

2022

JFI

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This paper explores several methods for investing a series of monthly cash contributions in an equity index, such as the S&P 500 or the Nikkei 225. The dollar cost averaging (DCA), three variations of market timing (MT1, MT2, and MT3), and 12-month perfect foresight (PF) are examined, and they are built on the same assumptions, such as monthly cash inflows, no borrowing of cash, and no selling of equity. The PF outcomes, unachievable by human beings, serve as the optimal boundaries. Our results show that in both the U.S. and Japanese markets, the PF dominates the DCA, while the MTs tend to deliver similar results as the DCA. Thus, the DCA seems an effective investment method.

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Weighted and Pure Dollar-Cost Averaging Strategies in Various Asset Classes

Lim,

Ong

2023

Proceedings of the 9th IRC Conference on Science, Engineering, and Technology

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Dollar-Cost Averaging, Asset Allocation, and Lump Sum Investing

Cited by 7 publications

References 28 publications

Do lump-sum investing strategies really outperform dollar-cost averaging strategies?

Do lump-sum investing strategies really outperform dollar-cost averaging strategies?

Does Market Timing Beat Dollar Cost Averaging?

Weighted and Pure Dollar-Cost Averaging Strategies in Various Asset Classes

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