Timeline for Dollar-cost-averaging interval based on decay of autocorrelation?
Current License: CC BY-SA 4.0
10 events
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| Aug 26, 2019 at 11:10 | comment | added | user2153235 | With respect, I disagree that everything I mentioned is a from of DCA, as I already mentioned quite a number of times how it differs. I also suggested in the past that mentioning DCA could have confused the question and I tried to clarify this. Regarding the comment that this forum is about liquid investments, one of the differences from the archetypal DCA problem is that it might also apply to transfers between investments, where the base option is not to let the funds sit in a 0 return alternative. Finally, isn't this group about more than just investment, but also money? | |
| Aug 26, 2019 at 1:43 | comment | added | farnsy | With respect, your comments persistently don't make sense. Your question as written is clearly about investments--any question not about investments is not on topic in this place. You have had very good and correct answers, which apply to anything you could buy and sell with any reasonable degree of liquidity. Everything you have mentioned that I have seen is a form of DCA and reduces both your expected return and your risk and is, in expectation, equivalent to a smaller up-front investment. Your search for an optimal DCA frequency is folly as has been explained multiple times here. | |
| Aug 26, 2019 at 1:03 | comment | added | user2153235 | My use of short and long fluctuations is just a stand-in for saying that the randomness has a power spectrum that is the Fourier Transform of the ACF. But it's not necessary to get into that dense terminology because the ideas are very intuitive. That doesn't mean that those concepts are just made up. The reason why I keep returning to this is because the advice provided keep referring to DCA in an investment context, and I've repeatedly try to correct that. Not trying to be difficult, but it has to make mathematical sense. | |
| Aug 25, 2019 at 23:46 | comment | added | farnsy | Your distinction between short and long horizon fluctuations sounds arbitrary to me. There is no natural distinction as pointed out in the other answer. I think what everyone is trying to say here is that the objectives you have stated do not make sense in an investing context. There is no frequency of DCA that is "better" than others in the sense that you will be better off if you follow it. In finance, "better off" means improvement in E(R) or risk. No frequency of DCA can take you outside the frontier defined by a static, up front, allocation except by chance. | |
| Aug 25, 2019 at 20:18 | comment | added | user2153235 | Yes, but spacing the purchases in time is not arbitrary. One has to choose the spacing to avoid the high frequency fluctuations, though you will still be subjected to the low frequency. If spacing is too small, you avoid most of neither. As for expected returns, I'm less concerned about that if I'm timing (say) consumer product purchases or transferring funds between investment vehicles rather than having cash sit in a 0-return account. I don't treat expected returns as the only consideration, otherwise I'd do a lump sum upfront purchase of something with very high risk and return. | |
| Aug 25, 2019 at 20:05 | comment | added | farnsy | You will certainly reduce your uncertainty and realize the local average by using any kind of trading pattern that buys over time instead of at once. But you will lose the associated expected return. Statistically this is no better than just buying up front, in a lesser amount. | |
| Aug 25, 2019 at 20:03 | comment | added | farnsy | For a given asset, there is a tradeoff between volatility/risk and expected return. You have described your problem in terms of minimizing the volatility/risk caused by purchase timing. This is equivalent to getting a better expected return for a given volatility--they require the same information. Neither is possible unless there is a consistent/persistent pattern in returns, which there is not. | |
| Aug 25, 2019 at 19:56 | comment | added | user2153235 | In contrast, I'm looking at a more general buying situation, e.g., perhaps even buying products rather than investments, or transferring funds between investments. The aim is to avoid the uncerntainty in fluctations and realize the local average. I'm wondering if we might be speaking about different problems. | |
| Aug 25, 2019 at 19:56 | comment | added | user2153235 | Hi, farnsy, not sure if I was sufficiently clear about this, but I'm not trying to capitalize on correlations. I'm trying to determine how the spacing of purchases that minimize correlations, at least as indicated by the autocorrelation function. Perhaps the use of the term DCA was misleading, as it implies trying to beat upfront lump sum? | |
| Aug 18, 2019 at 4:42 | history | answered | farnsy | CC BY-SA 4.0 |