An Empirical Study On Dollar Cost Averaging

Dollar cost averaging (DCA), as a simple and popular strategy, is used by manyindividual investors as a time-honored way of trying to increase long-term investmentreturns. Dollar Cost Averaging is a strategy for purchasing securities that is widelyrecommended by professional investment advisors. In recent years, more and more popularstrategy in China called automatic investment plan of mutual fund is a typical mode ofDCA. However, most studies suggest that DCA is suboptimal. Even it has been virtuallyignored by academic theorists in China. In this paper, we will detail the argument to theinvestors, and attempt to reveal the puzzle.This paper points out when risk (adverse event) occurs, Dollar cost averaging strategycan reduce risk and improve returns. Negative half variance is used to measure the degreeof risk in this paper. All study based on the Chinese mainland a-share listed companies assamples. The empirical study, found that on the premise of other conditions remainunchanged, the negative half variance the higher, the effect of Dollar cost averaging ismore better. It verifies the hypothesis that Dollar cost averaging strategy can not onlyavoiding risk but also improve investment return.In this paper, we put forward a new Angle of view, opinions and empirical evidence tosolve the puzzle of Dollar cost averaging.According to the typical application of Dollar cost averaging strategy in China’ssecurities market is automatic investment plan of mutual fund, the paper present thedevelopment situation of automatic investment plan of mutual fund and give some tips toinvestors to help them make better decision.Although there is a lot of research about Dollar cost averaging in foreign countries,but for regular intervals in Dollar cost averaging strategy of suboptimal investment theoryand practice has long prevailed in riddle, there is no reasonable explanation. Moreover,domestic research is more about this in practice give investment advice, financial personnelrelated academic research less, mostly focused on the application of fund is cast surely,rarely mentioned regular fixed investment law, not to its ascend to the height of theory, thispaper tries to make up for the gap, and uses the domestic stock market history data to unrealthe mysteries of regular fixed investment debate.