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Understanding Trading Behavior in 401(k) Plans

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  • Takeshi Yamaguchi

    (The Wharton School)

Abstract

We use a new database covering 1.2 million active participants to study trading activities in 1,530 defined contribution retirement plans. Descriptive statistics and regression analysis indicate some interesting trading patterns. First, we show that trading activity in 401(k) accounts is very limited: only 20% of participants ever reshuffled their portfolios in two years. Second, demographic characteristics are strongly associated with trading activities: traders are older, wealthier, more highly paid, male employees with longer plan tenure. Finally, we find that plan design factors, such as the number of funds offered, loan availability, and specific fund-families offered have significant impacts on 401(k) plan participants’ trading behavior. Moreover, on-line access channels stimulate participants to trade more frequently, although they do not increase turnover ratio as much. We conclude that plan design features are crucial in sharing trading patterns in 401(k) plans.

Suggested Citation

  • Takeshi Yamaguchi, 2006. "Understanding Trading Behavior in 401(k) Plans," Working Papers wp125, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp125
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    References listed on IDEAS

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    5. Mitchell, Olivia S. & Utkus, Stephen P. & Yang, Tongxuan (Stella), 2007. "Turning Workers Into Savers? Incentives, Liquidity, and Choice in 401(K) Plan Design," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(3), pages 469-489, September.
    6. Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1149-1187.
    7. Richard H. Thaler & Shlomo Benartzi, 2001. "Naive Diversification Strategies in Defined Contribution Saving Plans," American Economic Review, American Economic Association, vol. 91(1), pages 79-98, March.
    8. Paul A. Samuelson, 2011. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," World Scientific Book Chapters,in: THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE, chapter 31, pages 465-472 World Scientific Publishing Co. Pte. Ltd..
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