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
Jacobs, Heiko and Müller, Sebastian and Weber, Martin, How Should Individual Investors Diversify? An Empirical Evaluation of Alternative Asset Allocation Policies (July 16, 2013). Journal of Financial Markets, 19, 62-85. Available at SSRN: https://ssrn.com/abstract=1471955 or http://dx.doi.org/10.2139/ssrn.1471955