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The effect of market returns and volatility on investment choices in Chile’s defined contribution retirement plan

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  • Kristjanpoller, Werner D.
  • Olson, Josephine E.

Abstract

This study examines the trading behavior of active investors in Chile’s defined contribution retirement program in response to changes in market returns and volatility from 2007 to 2013, a period that included the Global Financial Crisis. Monthly trading among active investors increased when returns were negative but decreased with greater volatility, though less so during the crisis. The active affiliates tended to move to less risky funds when returns were negative and vice versa. However, higher volatility tended to increase risk taking but again less so during the crisis. Later, recommendations of an investment advisory service had significant effects on the investment behavior of some affiliates. Given the generally poor returns to active investors, the study ends with suggestions for improving Chile’s retirement program.

Suggested Citation

  • Kristjanpoller, Werner D. & Olson, Josephine E., 2021. "The effect of market returns and volatility on investment choices in Chile’s defined contribution retirement plan," Journal of International Money and Finance, Elsevier, vol. 112(C).
    • Handle: RePEc:eee:jimfin:v:112:y:2021:i:c:s0261560620302771
    DOI: 10.1016/j.jimonfin.2020.102321
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    Cited by:

    1. Madeira, Carlos, 2022. "The impact of the Chilean pension withdrawals during the Covid pandemic on the future savings rate," Journal of International Money and Finance, Elsevier, vol. 126(C).

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    More about this item

    Keywords

    Chile’s retirement plan; Individual investors’ behavior; Effect of market on investment decisions; Global financial crisis; Defined contribution retirement plans;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • N26 - Economic History - - Financial Markets and Institutions - - - Latin America; Caribbean

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