The day‐of‐the‐month effect and the performance of the dollar cost averaging strategy: Evidence from China

Abstract

AbstractDollar cost averaging (DCA) is a popular strategy adopted by investors who recognise the difficulty in consistently timing the market. Using a sample of open‐ended equity mutual funds in China from 2004 to 2020, this study investigates a calendar anomaly not yet documented – the day‐of‐the‐month effect for monthly mutual fund DCA investment. We find that DCA investment in the first 5 days of each month could generate an annualised style‐adjusted return of 0.35% more than in the remaining days. The results hold for subsamples of different fund styles, especially for growth funds. Moreover, the effects of earnings announcement, holidays and fund tournaments contribute to the DCA calendar anomaly. Robustness checks support our main findings.