Portfolio Choice and Trading in a Large 401(k) Plan

Abstract

We study nearly 7,000 retirement accounts during the April 1994-August 1998 period. Several interesting patterns emerge. Most asset allocations are extreme (either 100 percent or zero percent in equities) and there is inertia in asset allocations. Equity allocations are higher for males, married investors, and for investors with higher earnings and more seniority on the job; equity allocations are lower for older investors. There is very limited portfolio reshuffling, in sharp contrast to discount brokerage accounts. Daily changes in equity allocations correlate only weakly with same-day equity returns and do not correlate with future equity returns.

Myopic loss aversion and stock investments: An empirical study of private investors

“…Investors opt for low rebalancing frequency, conflicting with the argument that investors generally prefer high rebalancing frequency (Fellner and Sutter, 2009), or over-trade due to overconfidence (Odean, 1999;Barber and Odean, 2000;2001). Our results are consistent with those of Agnew, Balduzzi, and Sundén (2003), who find that individual investors in 401(k) Plans trade infrequently, with over 87% of their sample maintaining their allocation for at least one year and, on average, rebalancing every 3.85 years.…”

“…Although older investors hold higher proportion of equities, they reduce their holdings over time, supporting the life-cycle theory of Cocco et al (2005). Marital status also plays a significantly positive role in the changes in equity holdings, supporting the argument of Agnew et al (2003) that stock allocations should be higher for married investors since two earners within a household enable greater potential for diversification. We observe no significant education effect.…”

Payoff complementarities and financial fragility: Evidence from mutual fund outflows

“…(2006) and Agnew, Pierluigi, and Sunden (2003)). Moreover, this assumption helps to simplify the model by ruling out the possibility that the fund goes bankrupt.…”

Integrating corporate ownership and pension fund structures: A general equilibrium approach

“…However, the inability of policy makers to steer the economy towards one of the equilibria, where either the taxable investor or the fiduciary is the controlling client of the firm, produces a mixed solution with multiple firms where one set of them are in the first equilibrium, while the remaining are in the second. This explains the empirical 'puzzle' where bonds are observed, on average, in the portfolio of CSAs as well as TDAs (Agnew et al, 2003;Barber and Odean, 2004;Bergstresser and Poterba, 2004;and Zhou, 2009 who are yet to be born (Bodie et al, 1988;and Shiller, 2003). This feature, however, imposes insurmountable impending liabilities on the pension plan, stemming from the obligations to 12 Dammon et al (200412 Dammon et al ( , p. 1001 We identify the current shift towards DC plans to the dissipation of the above welfareenhancing feature of the DB plan in the presence of increasing fragility under the agency cost of liabilities (Myers, 2001).…”

“…Empirical evidence here reveals the stark difference between theory and practice, termed the 'asset location puzzle,' and is attributed to both individuals and firms, who follow inefficient asset location strategies. Agnew et al (2003), Barber and Odean (2004), and Bergstresser and Poterba (2004) empirically confirm that individual investors place an excessive amount of equity [debt] in their TDAs [CSAs], while Frank (2002) confirms that individual firms do not fully implement the tax arbitrage espoused in theory. They seem to leave around 69% of the "potential tax benefits on the table."…”