Lump-Sum Investing versus Dollar-Averaging
Year: 1994
Type: article
Abstract: This article shows that if the market has an expected positive risk premium, then lump-sum investing is mean-variance superior to dollar-averaging. In showing this, it is critical to hold constant the risks of the two policies. When this is done over a 12-month horizon, lump-sum investing provides a higher return by 1 to 4 percent as the stock size declines. Lump-sum investing provides a higher return using the S&P 500 in 40 of 65 years. Risk-averse investors who prefer dollar-averaging can accomplish the aim of risk reduction more effectively by lowering the fraction of funds invested in the risky asset and investing them all at once.
Author: Michael S. Rozeff
Institution: University at Buffalo, State University of New York
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2099413619