Langer, Thomas () (Westfälischen Wilhelms-Universität Münster Lehrstuhl für BWL, insbesondere Finanzierung) Nauhauser, Niels () (University of Mannheim)
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In this paper, we analyze the cost average (CA) phenomenon that many practitioners assume to have a positive impact on the success of a stock investment. We present conceptual thoughts on the appropriate way of measuring the return of different strategies and compare the risk/return characteristica of a CA-strategy with other strategies using simulated and empirical data. In the simulations, we further examine how the equity premium size and the volatility and autocorrelation of the stock returns influence the strategy comparison. In the empirical part, we analyze the effectiveness of a CA-strategy for long term investments into the DAX as well as for short term investments into the Nemax 50 and the Nasdaq Composite. We find that based on return expectation and variance a CA-strategy is always dominated by other strategies and must be considered suboptimal.
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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number
02-50.
Length: 30 pages Date of creation: 15 Oct 2002 Date of revision: Handle: RePEc:xrs:sfbmaa:02-50
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged. Contact details of provider: Postal: D-68131 Mannheim Phone: (49) (0) 621-292-2547 Fax: (49) (0) 621-292-5594 Email: Web page: http://www.sfb504.uni-mannheim.de/ More information through EDIRC
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