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Defined Contribution Pension Plans: Sticky or Discerning Money?

  • Clemens Sialm

    ()

    (University of Texas at Austin)

  • Laura Starks

    (Stanford University)

  • Hanjiang Zhang

    (Stanford University)

Participants in defined contribution (DC) retirement plans rarely adjust their portfolio allocations, suggesting that their investment choices and consequent money flows are sticky and not discerning. Yet, the participants’ inertia could be offset by the DC plan sponsors, who adjust the plan’s investment options. We examine these countervailing influences on flows into U.S. mutual funds. We find that flows into funds that derive from DC assets are more volatile and exhibit more performance sensitivity than non-DC flows, primarily due to the adjustments of the investment options by the plan sponsors. Thus, DC retirement money is less sticky and more discerning.

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Paper provided by Stanford Institute for Economic Policy Research in its series Discussion Papers with number 13-022.

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Date of creation: Jan 2014
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Handle: RePEc:sip:dpaper:13-022
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