How Should Individual Investors Diversify? An Empirical Evaluation of Alternative Asset Allocation Policies
47 Pages Posted: 13 Sep 2009 Last revised: 10 Jul 2014
Date Written: July 16, 2013
This paper evaluates numerous diversification strategies as a possible remedy against widespread costly investment mistakes of individual investors. Our results reveal that a very broad range of simple heuristic allocation schemes offers similar diversification gains, as well-established or recently developed portfolio optimization approaches. This holds true for both international diversification in the stock market and diversification over different asset classes. We thus suggest easy-to-implement allocation guidelines for individual investors.
Keywords: portfolio theory, household finance, asset allocation, international diversification, heuristics
JEL Classification: G11
Suggested Citation: Suggested Citation