A Comparison of the Risk and Performance of Dollar-Cost Averaging Strategy and Other Comparable Strategies

• Main Authors: Yi-chen Lai, 賴怡楨
• Other Authors: 呂瑞秋
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/25978589370851319767

碩士 === 逢甲大學 === 風險管理與保險研究所 === 99 === This paper compares the dollar cost averaging (DCA) investment strategy with three similars: the value averaging (VA) strategy, the contrarian strategy and the momentum strategy. All these stategies require an individual to invest some money at regular intervals. Though the amounts invested for each time are different, accumulated amounts are about the same on average. Assuming the Geometric Brownian motion model for asset prices, the Monte Carlo simulation is used to get the investment returns for each strategy under many different market scenarios. If the standard deviation of returns is used for the index of riskiness, the simulated results show that VA and the contrarian strategy are the top two with the high average return and risk, while the momentum strategy has the lowest average return and risk profile. In terms of the Sharpe ratio and the generalized Sharpe ratio which are often used for the investment performance measure, VA is the best investmet strategy and follows by the contrarian, DCA and the momentum under a two-year period of investment. In a five-year investment period, the contrarian is the top performer. For a ten-year investment period, the contrarian and DCA perform better than the others. For the two longer periods, the performance of VA is the worst. Comparing against with DCA, the winning percentages of VA and the contrarian are over 80%, while the momentum is often less than 5%. Overall, the contarian stategy is a good alternative for DCA.