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The Dynamic Relationship Between Market Volatility and Dollar Cost Averaging Strategy Returns: An Empirical Investigation

In: Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025)

Author

Listed:
  • Siyuan Sang

    (Beijing Tianrun New Energy Investment Co., Ltd, Algorithm Researcher)

  • Ru Bai

    (Beijing Tianrun New Energy Investment Co., Ltd, Director of Power Trading)

  • Haibo Li

    (Beijing Tianrun New Energy Investment Co., Ltd, Associate Director of Power Trading)

Abstract

This study empirically examines the performance of a Dollar-Cost Averaging (DCA) strategy under varying market volatility conditions. DCA, which involves investing a fixed sum at regular intervals, is popular for its risk-mitigation properties. However, its effectiveness, especially relative to lump-sum investing (B&H)—depends on market dynamics. Using Monte Carlo simulations to generate price paths based on geometric Brownian motion, we analyze DCA returns, volatility clustering, and transaction frequency. Results indicate that while DCA underperforms B&H in steadily rising markets, it can offer risk-adjusted advantages in highly volatile scenarios. The study also discusses practical implications for optimizing DCA by adjusting investment frequency and considering transaction costs.

Suggested Citation

  • Siyuan Sang & Ru Bai & Haibo Li, 2025. "The Dynamic Relationship Between Market Volatility and Dollar Cost Averaging Strategy Returns: An Empirical Investigation," Advances in Economics, Business and Management Research, in: Barbara Siuta-Tokarska & Adriana Grigorescu & Md. Mamun Habib & Yifeng Zhu (ed.), Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025), pages 72-79, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-835-6_9
    DOI: 10.2991/978-94-6463-835-6_9
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