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

ArXiv ID: ssrn-1471955 “View on arXiv”

Authors: Unknown

Abstract

This paper evaluates numerous diversification strategies as a possible remedy against widespread costly investment mistakes of individual investors. Our results

Keywords: diversification strategies, investment mistakes, individual investors, Equities

Complexity vs Empirical Score

• Math Complexity: 3.5/10
• Empirical Rigor: 8.0/10
• Quadrant: Street Traders
• Why: The paper employs robust statistical methods like bootstrap tests and multi-factor regressions, but focuses on evaluating existing heuristic strategies rather than developing new complex mathematics. Its empirical rigor is high due to the extensive backtesting framework, use of real ETF-accessible indices, and sensitivity checks.

  flowchart TD
    A["Research Question<br>Optimal Diversification for Individuals?"] --> B["Methodology<br>Empirical Evaluation of Allocation Policies"]
    B --> C["Data Inputs<br>Equity Returns & Investor Constraints"]
    C --> D["Computation<br>Backtest Strategies on Historical Data"]
    D --> E["Key Outcomes<br>Costly Mistakes Identified &<br>Effective Diversification Remedies"]