Portfolio Selection for Individual Passive Investing
41 Pages Posted: 5 Jul 2017 Last revised: 3 Apr 2019
Date Written: March 13, 2019
This paper considers passive fund selection from an individual investor’s perspective. The growth of the passive fund market over the past decade is staggering. Individual investors who wish to buy these funds for their retirement and brokerage accounts have many options and are faced with a difficult selection problem. Which funds do they invest in, and in what proportions? We develop a novel statistical methodology to address this problem. A Bayesian decision-theoretic approach is presented to construct optimal sparse portfolios for individual investors over time.
Keywords: Bayesian methods, dynamic portfolio selection, decision theory, model selection
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