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Why have target-date funds performed better in the COVID-19 selloff than the 2008 selloff?

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  • Mao, Mike Qinghao
  • Wong, Ching Hin

Abstract

We document a reduction in both the level and cross-sectional dispersion of systematic risk in the target-date fund (TDF) market after 2008, which resulted in better performance of TDFs during the COVID-19 selloff compared to the 2008 selloff and a reduction in TDF return dispersion. We find that the shift is more pronounced in close-to-retirement funds and driven by the TDF series investing more in equities in the early period, consistent with TDFs catering to the market demand for lower risk exposure after the 2008 crisis. In addition, TDF systematic risk shifters do not exhibit more idiosyncratic risk-taking.

Suggested Citation

  • Mao, Mike Qinghao & Wong, Ching Hin, 2022. "Why have target-date funds performed better in the COVID-19 selloff than the 2008 selloff?," Journal of Banking & Finance, Elsevier, vol. 135(C).
    • Handle: RePEc:eee:jbfina:v:135:y:2022:i:c:s0378426621003186
    DOI: 10.1016/j.jbankfin.2021.106367
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    2. Milan Szabo, 2022. "Meeting investor outflows in Czech bond and equity funds: horizontal or vertical?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(4), pages 1123-1151, November.

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    More about this item

    Keywords

    Default investment; Target-date fund; COVID-19; Glide path;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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