A Value at Risk Argument for Dollar Cost Averaging

The returns on Dollar Cost Average (DCA) portfolios are compared to a variety of lump sum portfolios.  The study uses monthly CRSP (Chicago Center for Research in Security Prices) total market returns over the period 1963... [ view full abstract ]

The returns on Dollar Cost Average (DCA) portfolios are compared to a variety of lump sum portfolios.  The study uses monthly CRSP (Chicago Center for Research in Security Prices) total market returns over the period 1963 though 2017.  The DCA implementation periods range from 3 months to 15 months.  This paper finds that:  

• For DCA implementation periods of 8 months or less, DCA investment performance is not better (nor worse) than lump sum strategies.
• For periods of 9 months or more, DCA performance is dominated (mean variance domination) by lump sum strategies that involve investing a portion of the funds in the risky investment and the remaining amount in T-Bills.
• Using Value at Risk  (VAR) the study shows that investors with a substantial aversion to downside risk will prefer DCA over the 100% lump sum strategy.