Paper: SSRN 1471955

Abstract

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

Complexity vs Empirical Score

  • Math Complexity: 3.5/10
  • Empirical Rigor: 8.0/10
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: 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.

Research Flowchart

  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"]