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How should individual investors diversify? An empirical evaluation of alternative asset allocation policies

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  • Jacobs, Heiko
  • Müller, Sebastian
  • Weber, Martin

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.

Suggested Citation

  • Jacobs, Heiko & Müller, Sebastian & Weber, Martin, 2014. "How should individual investors diversify? An empirical evaluation of alternative asset allocation policies," Journal of Financial Markets, Elsevier, vol. 19(C), pages 62-85.
    • Handle: RePEc:eee:finmar:v:19:y:2014:i:c:p:62-85
    DOI: 10.1016/j.finmar.2013.07.004
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    More about this item

    Keywords

    Portfolio theory; Household finance; Asset allocation; International diversification; Heuristics;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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