Effectiveness of Augmented Dollar-Cost Averaging

Anna Kapalczynski and Donald Lien

The North American Journal of Economics and Finance, 2021, vol. 56, issue C

Abstract: Dollar-Cost Averaging investment strategy has been widely criticized by academics for decades. This article proposes an Augmented Dollar-Cost Averaging (ADCA) strategy that conditions investment strategy to the prevailing market environment. The ADCA investment strategy is more aggressive if the economy is expanding and more conservative if the economy is contracting. Changes in market volatility, unemployment rate and capacity utilization were used to determine whether the economy was expanding or contracting. Using the Sharpe ratio, coupled with first-order and second-order stochastic dominance criteria, this study shows the risk-reducing benefits of ADCA in the U.S. stock market between 1967 and 2018.

Keywords: Dollar-Cost Averaging; Market volatility; Unemployment rate; Capacity utilization; Retirement planning; Risk-aversion; Risk-reduction (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:56:y:2021:i:c:s1062940821000103

DOI: 10.1016/j.najef.2021.101370

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