How Should Individual Investors Diversify? An Empirical Evaluation of Alternative Asset Allocation Policies

47 Pages Posted: 13 Sep 2009 Last revised: 10 Jul 2014

Heiko Jacobs

University of Mannheim, Finance Department

Sebastian Müller

German Graduate School of Management and Law

Martin Weber

University of Mannheim - Department of Banking and Finance

Date Written: July 16, 2013

Abstract

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

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

Heiko Jacobs

University of Mannheim, Finance Department ( email )

Mannheim, 68131
Germany
+49-(0)621-181-3453 (Phone)
+49-(0)621-181-1534 (Fax)

HOME PAGE: http://weber.bwl.uni-mannheim.de/mitarbeiter/heiko_jacobs/

Sebastian Müller (Contact Author)

German Graduate School of Management and Law ( email )

Bildungscampus 2
Heilbronn, 74076
Germany
+49-(0)7131645636861 (Phone)
+49-(0)713164563627 (Fax)

Martin Weber

University of Mannheim - Department of Banking and Finance ( email )

D-68131 Mannheim
Germany
+49 621 181 1532 (Phone)
+49 621 181 1534 (Fax)

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