Advanced Search
MyIDEAS: Login

Individual account investment options and portfolio choice: Behavioral lessons from 401(k) plans

Contents:

Author Info

  • Brown, Jeffrey R.
  • Liang, Nellie
  • Weisbenner, Scott

Abstract

This paper examines how the menu of investment options made available to workers in defined contribution plans influences portfolio choice. Using unique panel data of 401(k) plans in the U.S., we present three principle findings. First, we show that the share of investment options in a particular asset class (i.e., company stock, equities, fixed income, and balanced funds) has a significant effect on aggregate participant portfolio allocations across these asset classes. Second, we document that the vast majority of the new funds added to 401(k) plans are high-cost actively managed equity funds, as opposed to lower-cost equity index funds. Third, because the average share of assets invested in low-cost equity index funds declines with an increase in the number of options, average portfolio expenses increase and average portfolio performance is thus depressed. All of these findings are obtained from a panel data set, enabling us to control for heterogeneity in the investment preferences of workers across firms and across time.

(This abstract was borrowed from another version of this item.)

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.sciencedirect.com/science/article/B6V76-4NH7DY4-1/2/b42761015302d6a3cb4aaf7bacb704ad
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 91 (2007)
Issue (Month): 10 (November)
Pages: 1992-2013

as in new window
Handle: RePEc:eee:pubeco:v:91:y:2007:i:10:p:1992-2013

Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505578

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2002. "For Better or For Worse: Default Effects and 401(k) Savings Behavior," JCPR Working Papers 256, Northwestern University/University of Chicago Joint Center for Poverty Research.
  2. Brigitte C. Madrian & Dennis F. Shea, 2000. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," NBER Working Papers 7682, National Bureau of Economic Research, Inc.
  3. Carhart, Mark M, 1997. " On Persistence in Mutual Fund Performance," Journal of Finance, American Finance Association, vol. 52(1), pages 57-82, March.
  4. Samuelson, William & Zeckhauser, Richard, 1988. " Status Quo Bias in Decision Making," Journal of Risk and Uncertainty, Springer, vol. 1(1), pages 7-59, March.
  5. Brown, Jeffrey R. & Liang, Nellie & Weisbenner, Scott, 2006. "401(k) matching contributions in company stock: Costs and benefits for firms and workers," Journal of Public Economics, Elsevier, vol. 90(6-7), pages 1315-1346, August.
  6. Gur Huberman & Sheena Iyengar & Wei Jiang, 2007. "Defined Contribution Pension Plans: Determinants of Participation and Contributions Rates," Journal of Financial Services Research, Springer, vol. 31(1), pages 1-32, February.
  7. James J. Choi & David Laibson & Brigitte Madrian & Andrew Metrick, 2004. "Employees' Investment Decisions about Company Stock," NBER Working Papers 10228, National Bureau of Economic Research, Inc.
  8. Gur Huberman & Paul Sengmueller, 2004. "Performance and Employer Stock in 401(k) Plans," Review of Finance, Springer, vol. 8(3), pages 403-443.
  9. Julie Agnew & Pierluigi Balduzzi & Annika Sundén, 2003. "Portfolio Choice and Trading in a Large 401(k) Plan," American Economic Review, American Economic Association, vol. 93(1), pages 193-215, March.
  10. Michael C. Jensen, 1968. "The Performance Of Mutual Funds In The Period 1945–1964," Journal of Finance, American Finance Association, vol. 23(2), pages 389-416, 05.
  11. Shlomo Benartzi, 2001. "Excessive Extrapolation and the Allocation of 401(k) Accounts to Company Stock," Journal of Finance, American Finance Association, vol. 56(5), pages 1747-1764, October.
  12. Agnew, Julie R., 2006. "Do Behavioral Biases Vary across Individuals? Evidence from Individual Level 401(k) Data," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(04), pages 939-962, December.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. James Choi & David Laibson & Brigitte Madrian, 2008. "The Flypaper Effect in Individual Investor Asset Allocation," Yale School of Management Working Papers amz2560, Yale School of Management.
  2. Campbell, John Y. & Jackson, Howell E. & Madrian, Brigitte C. & Tufano, Peter, 2010. "The Regulation of Consumer Financial Products: An Introductory Essay with Four Case Studies," Working Paper Series rwp10-040, Harvard University, John F. Kennedy School of Government.
  3. Sy, Wilson, 2010. "Cost, performance and portfolio composition of small pension funds in Australia," Journal of Pension Economics and Finance, Cambridge University Press, vol. 9(03), pages 345-368, July.
  4. Gene Amromin & Jennifer Huang & Clemens Sialm, 2007. "The tradeoff between mortgage prepayments and tax-deferred retirement savings," NBER Chapters, in: Trans-Atlantic Public Economics Seminar (TAPES), Public Policy and Retirement, pages 2014-2040 National Bureau of Economic Research, Inc.
  5. Tang, Ning & Mitchell, Olivia S. & Mottola, Gary R. & Utkus, Stephen P., 2010. "The efficiency of sponsor and participant portfolio choices in 401(k) plans," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 1073-1085, December.
  6. Sumit Agarwal & Brent W. Ambrose, 2008. "Does it pay to read your junk mail? evidence of the effect of advertising on home equity credit choices," Working Paper Series WP-08-09, Federal Reserve Bank of Chicago.
  7. John Beshears & James J. Choi & David Laibson & Brigitte C. Madrian, 2011. "Behavioral Economics Perspectives on Public Sector Pension Plans," NBER Working Papers 16728, National Bureau of Economic Research, Inc.
  8. Iyengar, Sheena S. & Kamenica, Emir, 2010. "Choice proliferation, simplicity seeking, and asset allocation," Journal of Public Economics, Elsevier, vol. 94(7-8), pages 530-539, August.
  9. Laibson, David I. & Madrian, Brigitte & Choi, James J., 2009. "Mental Accounting in Portfolio Choice: Evidence from a Flypaper Effect," Scholarly Articles 4686774, Harvard University Department of Economics.
  10. Clemens Sialm & Laura Starks & Hanjiang Zhang, 2014. "Defined Contribution Pension Plans: Sticky or Discerning Money?," Discussion Papers 13-022, Stanford Institute for Economic Policy Research.
  11. Mauro Mastrogiacomo & Rob Alessie, 2011. "Did you really save so little for your retirement? An analysis of retirement savings and unconventional retirement accounts," CPB Discussion Paper 200, CPB Netherlands Bureau for Economic Policy Analysis.
  12. Javed I. Ahmed & Brad M. Barber & Terrance Odean, 2013. "Made poorer by choice: worker outcomes in Social Security v. private retirement accounts," Finance and Economics Discussion Series 2013-23, Board of Governors of the Federal Reserve System (U.S.).
  13. Ning Tang & Olivia S. Mitchell, 2008. "The Efficiency of Pension Plan Investment Menus: Investment Choices in Defined Contribution Pension Plans," Working Papers wp176, University of Michigan, Michigan Retirement Research Center.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:eee:pubeco:v:91:y:2007:i:10:p:1992-2013. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.