Buy the Dip?

46 Pages Posted: 28 Apr 2021 Last revised: 22 Jan 2023

See all articles by Stefano Bonini

Stefano Bonini

Stevens Institute of Technology - School of Business

Thomas Shohfi

U.S. Securities and Exchange Commission

Majeed Simaan

Stevens Institute of Technology - School of Business

Date Written: January 20, 2023

Abstract

We study the fundamental properties of the “Buy the dip'' (BTD) investment heuristic. Looking into cash holdings versus a stock market exchange-traded fund, we find that BTD does not necessarily maximize investors' real terminal wealth and is sensitive to market conditions at the beginning year of investment. While under certain conditions, BTD may improve risk-adjusted performance over a passive investment policy or a classical Dollar Cost Averaging approach, its optimality is subject to estimation risk. Given the vast popularity of BTD, our results have important implications for asset managers and retail investors alike.

Keywords: Asset Allocation, Bear/Bull Market, Market Timing, Social Media

JEL Classification: G10, G11, G17, G41

Suggested Citation

Bonini, Stefano and Shohfi, Thomas and Simaan, Majeed, Buy the Dip? (January 20, 2023). Available at SSRN: https://ssrn.com/abstract=3835376 or http://dx.doi.org/10.2139/ssrn.3835376

Stefano Bonini

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

Thomas Shohfi

U.S. Securities and Exchange Commission ( email )

Washington, DC
United States

HOME PAGE: http://shohfi.com/

Majeed Simaan (Contact Author)

Stevens Institute of Technology - School of Business ( email )

Hoboken, NJ 07030
United States

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