The Cost of Owning Employer Stocks: Lessons from Taiwan
Peking University - Guanghua School of Management
National Chengchi University (NCCU) - Department of Finance and Banking
China Academy of Financial Research (CAFR); Yale School of Management; University of California, Davis - Graduate School of Management
December 1, 2007
Using data on all employees at listed companies in Taiwan, we find that the bias toward employer stocks is generic to individual investor decision-making, but not limited to retirement plans. 71 percent of sample employees invest in employer stocks and the employer stocks make up on average 47 percent of employee equity portfolios. The under-diversification resulting from the bias toward employer stocks is highly costly. Holding current portfolio risk constant, employees forego 4.89 percent per annum in raw returns by investing in employer stocks, which represents 39.74 percent of their average 1998 salary income. Our findings have important implications for social security reform and retirement account management.
working papers series
Date posted: March 8, 2010
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