Dollar-Cost Averaging Versus Lump-Sum-Investing : Evidence from Sweden

• Main Authors: Eriksson, Ludwig, Fransson, Philip
• Format: Others
• Language: English
• Published: Uppsala universitet, Företagsekonomiska institutionen 2021
• Subjects: Economics and Business; Ekonomi och näringsliv
• Online Access: http://urn.kb.se/resolve?urn=urn:nbn:se:uu:diva-433867

Dollar-Cost Averaging (DCA) is a popular investment strategy for purchasing equity securities. Even though previous research shows that DCA is somehow inefficient, it has remained a default strategy widely recommended by financial advisors worldwide. Using this starting point, this thesis empirically investigates and compares DCA with Lump-Sum Investing (LSI) through a replicative approach. We use a simulation to analyze the strategies performance on the Swedish Equity Market. The evaluation is conducted from both a traditional and behavioral finance framework. In line with Leggio and Lien (2001), whom we replicate, our results indicate LSI being a superior strategy for both mean-variance and loss-averse investors. Hence, we argue that LSI should not be forfeit as a potential strategy when entering the Swedish market. An evaluation of the two strategies should help Swedish investors to make better-informed decisions about whether to use DCA or LSI.