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But it's not a hedge. If you commit to the strategy (buy monthly for 10 months) then you're just choosing an unknown price over a known price. And if you don'

• kreetx 4y ago
  Isn't it still a hedge? Statistically, you'll get the average price of the stock for the period you DCA. While if you enter at any single moment, you get a somewhat random price. Another thought: if the thesis is that the price will go up, then whatever sum you have and want to invest, should you invest it all now - given that the price is supposed to go up?
  • DelaneyM 4y ago
    If you commit to the strategy in advance, then you're picking an unknown price instead of a current price, and the unknown price is likely higher. A financial hedge is, generally, something which reduces risk or improves on the risk:reward ratio in a mathematically demonstrable way. Generally this means bundling uncorrelated (or anticorrelated) assets. This concept won a Nobel for Econ in 1990(?), and is the foundation of modern portfolio theory. Using "hedge" in a more colloquial way, it can mean "a way to protect yourself from an unexpected poor outcome". But by that definition this also fails, since you're just as vulnerable to outlier events, but the nature of those outlier events is different (and perhaps less intuitive).
    • kreetx 4y ago
      This makes sense, thanks!