Hostname: page-component-586b7cd67f-vdxz6 Total loading time: 0 Render date: 2024-11-20T08:43:41.766Z Has data issue: false hasContentIssue false
  • English
  • Français

A Note on the Suboptimality of Dollar-Cost Averaging as an Investment Policy

Published online by Cambridge University Press:  06 April 2009

George M. Constantinides
Get access Rights & Permissions [Opens in a new window]

Extract

The widespread notion that dollar-cost averaging can help an investor minimize the risk of investing all of one's capital in the market at an inappropriate time is aptly stated by Malkiel [4, p. 242]:

Periodic investments of equal dollar amounts in common stocks can substantially reduce (but not avoid) the risks of equity investment by insuring that the entire portfolio of stocks will not be purchased at temporarily inflated prices. The investor who makes equal dollar investments will buy fewer shares when prices are high and more shares when prices are low.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 14 , Issue 2 , June 1979 , pp. 443 - 450
Copyright
Copyright © School of Business Administration, University of Washington 1979

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

[1]Cohen, J. B.; Zinbarg, E. D.; and Zeikel, A.. Investment Analysis and Portfolio Management. Irwin (1977).Google Scholar
[2]Fama, E. F. “Multiperiod Consumption Investment Decisions.” American Economic Review, Vol. 60 (03 1970), pp. 163–74.Google Scholar
[3]Fama, E. F. “Multiperiod Consumption Investment Decisions: A Correction.” American Economic Review, Vol. 66 (09 1976), pp. 723–24.Google Scholar
[4]Malkiel, B. G.A Random Walk Down Wall Street. New York: Norton (1975).Google Scholar
[5]Neave, E. H., and Wiginton, J. C.. “Dollar Averaging and Global Risk Aversion.” School of Business, Queens University, Working Paper No. 76–7 (10 1976).Google Scholar
[6]Pye, G. “Minimax Policies for Selling an Asset and Dollar Averaging.” Management Science, Vol. 17 (03 1971), pp. 379–93.CrossRefGoogle Scholar
[7]Scholes, M. S. “The Market for Securities: Substitution Versus Price Pressure and the Effects of Information on Share Prices.” Journal of Business, Vol. 45 (04 1972).Google Scholar