Buy the dip?

Research output: Contribution to journalArticlepeer-review

Abstract

We study the fundamental properties of the “Buy the dip” (BTD) investment heuristic. Looking into cash holdings versus a stock market exchange-traded fund, we find that BTD does not necessarily maximize investors' real terminal wealth and is sensitive to market conditions at the beginning year of investment. While under certain conditions, BTD may improve risk-adjusted performance over a passive investment policy or a classical dollar-cost averaging approach, its optimality is subject to estimation risk. Given the vast popularity of BTD, our results have important implications for asset managers and retail investors alike.

Original languageEnglish
Pages (from-to)2033-2070
Number of pages38
JournalEuropean Financial Management
Volume30
Issue number4
DOIs
StatePublished - Sep 2024

Keywords

  • asset allocation
  • dollar-cost averaging
  • market timing
  • model risk

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