Buy the Dip
16 Pages Posted: 28 Apr 2021 Last revised: 5 May 2021
Date Written: April 27, 2021
The increasing role of social media in financial markets has encouraged retail traders to "buy the dip" (BTD). We present a simple paradigm describing this strategy in terms of dip size and purchase smoothing. The empirical investigation considers different specifications and testing periods. While BTD does not necessarily maximize investors' terminal wealth and is sensitive to market conditions at the beginning year of investment, it does provide a heuristic approach to improve risk-adjusted performance over a passive investment policy. Overall, BTD provides a simple, intuitive approach in dealing with portfolio selection over time.
Keywords: Asset Allocation, Bear/Bull Market, Market Timing, Social Media
JEL Classification: G10, G11, G17, G41
Suggested Citation: Suggested Citation