வணிகம் மற்றும் பொருளாதார இதழ்

On Benefits of Augmented Dollar Cost Averaging

Abstract

Anna Kapalczynski

Dollar Cost Averaging (DCA) is a popular investment approach, where one invests funds in increments, at periodic intervals, rather than allocate funds all at once, in a lump sum. The idea behind averaging into the market is that it not only lowers average price of an asset, but also lessens volatility of that assets’ performance. Despite theoretical criticisms, it is a widely prevalent investment technique. Kapalczynski and Lien (2021) augmented the traditional DCA approach by using conditional information to adjust aggressiveness of DCA. The Augmented Dollar Cost Averaging (ADCA) calls for allocating larger portion of funds into the market over shorter period of time, when economy is expanding, and allocating smaller amounts into the marker, when economy is receding. To determine expansions or recessions, Kapalczynski and Lien (2021) used changes in market volatility, unemployment and capacity utilization. Using Sharpe ratio and stochastic dominance criteria they showed statistically significant risk-reduction benefits of ADCA in the U.S. stock market between 1967 and 2018.