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An Analysis of How Individuals React to Market Returns in One 401(k) Plan

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  • Julie Agnew

Abstract

Using a unique dataset of 401(k) trades, this paper’s results suggest that in most cases only equity fund outflows, not inflows, are significantly related to their own past fund returns. Also, the strong correlation between flows and lagged returns is only significant when fund returns are extremely low. Furthermore, most trades (48 percent) are either from equities to risk-free assets, or vice versa. Finally, it is only the flows from equities to GICs that show a strong correlation with one-day lagged returns. This suggests that many trades are “flights to safety” not return chasing.

Suggested Citation

  • Julie Agnew, 2004. "An Analysis of How Individuals React to Market Returns in One 401(k) Plan," Working Papers, Center for Retirement Research at Boston College wp2004-13, Center for Retirement Research, revised Apr 2004.
    • Handle: RePEc:crr:crrwps:wp2004-13
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    File URL: http://crr.bc.edu/working-papers/an-analysis-of-how-individuals-react-to-market-returns-in-one-401k-plan/
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