Does loss aversion explain dollar-cost averaging?

Authors

  • Karyl B. Leggio Bloch School of Business and Public Administration, University of Missouri at Kansas City, Kansas City, MO 64110, USA
  • Donald Lien College of Business, University of Texas at San Antonio, San Antonio, TX 78249-0631, USA

DOI:

https://doi.org/10.1016/S1057-0810(02)00090-2

Keywords:

Asset allocation, Loss aversion, Dollar-cost averaging

Abstract

Some studies find the dollar-cost averaging investment strategy to be sub-optimal from a mean variance expected utility of wealth perspective. Statman [The Journal of Portfolio Management .1995) fall] introduces a behavioral rationale for the persistence of dollar-cost averaging. Using prospect theory to create an alternative utility function that does not require investors to be strictly risk averse, we empirically test Statman's conjecture for four investment strategies and for alternative stock investments. We find loss aversion still does not explain the existence of the dollar-cost averaging investment strategy. Copyright 2001 Elsevier Science Inc. All rights reserved.

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Published

2001-12-30

How to Cite

Leggio, K. B., & Lien, D. (2001). Does loss aversion explain dollar-cost averaging?. Financial Services Review, 10(1-4), 117–127. https://doi.org/10.1016/S1057-0810(02)00090-2

Issue

Vol. 10 No. 1-4 (2001): Financial Services Review

Section

New Original Submission

License

Copyright (c) 2001 Elsevier Science Inc.

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