Building a Better Mousetrap: Enhanced Dollar Cost Averaging
Lee M. Dunham (Creighton University) and Geoffrey Friesen (University of Nebraska) | Dec 2011
This paper presents a simple, intuitive investment strategy that improves upon the popular dollar-cost-averaging (DCA) approach. The investment strategy, which we call enhanced dollar-cost-averaging (EDCA), is a simple, rule-based strategy that retains most of the attributes of traditional DCA that are appealing to most investors but yet adjusts to new information, which traditional DCA does not. Simulation results show that the EDCA strategy reliably outperforms the DCA strategy in terms of higher dollar-weighted returns about 90% of the time and nearly always delivers greater terminal wealth for reasonable values of the risk premium. EDCA is most effective when applied to high volatility assets, when cash flows are highly sensitive to past returns, and during secular bear markets. Historical back-testing on equity indexes and mutual funds indicates that investor dollar-weighted returns can be enhanced by between 30 and 70 basis points per year simply by switching from DCA to EDCA.
Monthly Archives: March 2012
Jobless Claims Rose Again Last Week
New jobless claims jumped 8,000 last week to a seasonally adjusted 362,000, the Labor Department reports. That’s the third weekly increase in a row and the biggest weekly gain since late-January. In addition, the four-week moving claims average inched higher for the first time in two months. Are those reasons to worry? Well, yes. You (still) can’t take anything for granted in macro these days, least of all the idea that a recovery is destiny. Having said that, now’s a good time to roll out the standard caveat that weekly claims are a volatile series and to the extent that we can draw any conclusions here it arises from the trend. On that front, fortunately, the news is still encouraging.
Strategic Briefing | 3.8.12 | Jobs, Jobs, Jobs
Treasuries Slide Before U.S. Payrolls Report as Greek Bond Deadline Looms
Bloomberg | Mar 8
“The jobs report is key,” said Alessandro Mercuri, an interest-rate strategist at Lloyds Bank Corporate Markets in London. “The market has been telling itself over the past two months that the U.S. is not going to have a double-dip recession. If you look at the 10-year yield it seems that is has been forming a new range, a higher, much narrower one.”
ADP Reports Faster Job Growth In February
Job growth in the private sector accelerated in February, according to the ADP Employment report. Employment rose 216, 000 last month, up from January’s 173,000 gain. “This does suggest we are moving in the right direction,” Beth Ann Bovino, senior U.S. economist at Standard & Poor’s Ratings Services, tells Reuters. “It supports the expectations of another 200,000-plus in Friday’s payroll report [from the U.S. Labor Department]. The jobs numbers are looking healthier.”
Death For Buy & Hold? Where Is Thy Sting?
Rumors of buy-and-hold’s death are premature but persistent. If you you’ll find a long list of stories and books through the years that proclaim that buying and holding is an investment idea that’s passed to the afterworld of defunct strategies. But a funny thing happened on the way to the funeral: the corpse survived. In fact, he’s doing quite well, to judge by the performance numbers.
The Great Depression Vs. The Great Recession: The Update
Economists Barry Eichengreen and Kevin O’Rourke have been comparing the downturn in the 1930s to the recent macro debacle in charts and words and offer a fresh update. The quick summary is that we’re doing better in the 21st century, but the recovery seems to be struggling. “While industrial production and trade recovered much more quickly than during the Great Depression,” they write, “both series now appear to be slowing down.” What does it mean? “It suggests that, as St Augustine would have said had he been managing director of the IMF, there is a case for additional fiscal consolidation and monetary normalisation, but not yet.”
Small Business Job Growth Slows In February, Intuit Reports
This week brings updates on three employment reports, and the first one arrived yesterday. The Intuit Small Business Index rose in February, the payrolls firm Intuit advises. “Job creation among small businesses continued in February, albeit slowly,” the firm says in a press release. “This slow growth was accompanied by a small uptick in compensation and a slight decrease in hours worked.”
Will The ISM Services Sector Index’s Feb Rise Spill Over To Friday’s Jobs Report?
The services sector, which dominates the U.S. economy relative to manufacturing, grew at a modestly faster pace in February, the Institute for Supply Management reports. The ISM non-manufacturing index rose to 57.3 from 56.8 in January, reaching the highest level since March 2011. Any reading above 50 equates with economic growth and so higher levels imply a strengthening expansion. Today’s news is clearly another reason to remain optimistic, although this is hardly an all-clear signal that blows away other risk factors. Nonetheless, the services sector overall employs most of the labor force in the U.S. and so we have another data point for thinking positively about Friday’s jobs report.
Debating (And Misreading) Milton Friedman’s Legacy For Monetary Policy
Amity Shlaes, author of The Forgotten Man: A New History of the Great Depression
Book Bits For Saturday: 3.3.2012
● The Escape Artists: How Obama’s Team Fumbled the Recovery
By Noam Scheiber
Review via Slate
The moment when the economy seems to be turning around is perhaps not the best time to publish a book explaining why it took so long to get things right. Still, with his new book, The Escape Artists: How Obama’s Team Fumbled the Recovery, Noam Scheiber offers a persuasive take on administration policymaking, one in which there are no heroes and no villains, no fools, no saints, not even a clear road not taken. It’s a portrait of a team that failed in its responsibility to the country to avoid a prolonged and cataclysmic downturn, but did so under extremely trying circumstances—and still, arguably, produced the best possible result.
