Buy the Dip

20 Pages Posted: 28 Apr 2021 Last revised: 5 Aug 2021

See all articles by Thomas Shohfi

Thomas Shohfi

Rensselaer Polytechnic Institute (RPI) - Department of Finance and Accounting

Majeed Simaan

Stevens Institute of Technology - School of Business

Date Written: April 27, 2021

Abstract

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

Shohfi, Thomas and Simaan, Majeed, Buy the Dip (April 27, 2021). Available at SSRN: https://ssrn.com/abstract=3835376 or http://dx.doi.org/10.2139/ssrn.3835376

Thomas Shohfi

Rensselaer Polytechnic Institute (RPI) - Department of Finance and Accounting ( email )

Pittsburgh Building
110 8th street
Troy, NY 12180
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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