Abstract

http://ssrn.com/abstract=486232
 
 

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Employees' Investment Decisions About Company Stock


James J. Choi


Yale School of Management; National Bureau of Economic Research (NBER)

David Laibson


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Brigitte C. Madrian


Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Andrew Metrick


Yale School of Management; National Bureau of Economic Research (NBER)

January 2004

NBER Working Paper No. w10228

Abstract:     
We study the relationship between past returns on a company's stock and the level of investment in that stock by the participants in that company's 401(k) plan. Using data on 94,191 plan participants, we analyze several different decision points: the initial fraction of savings allocated to company stock, the changes in this fraction, and the reallocations of portfolio holdings across different asset classes. Like Benartzi (2001), we find that high past returns on company stock induce participants to allocate more of their contributions to company stock. We also find, however, that high returns on company stock have the opposite effect on reallocations of portfolio holdings, with high returns leading to shifts away from company stock and into other forms of equity. Overall, for company stock decisions, participants in our sample appear to be momentum investors when making contribution decisions and contrarian investors when making trading decisions.

Number of Pages in PDF File: 29

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Date posted: January 23, 2004  

Suggested Citation

Choi, James J. and Laibson, David and Madrian, Brigitte C. and Metrick, Andrew, Employees' Investment Decisions About Company Stock (January 2004). NBER Working Paper No. w10228. Available at SSRN: http://ssrn.com/abstract=486232

Contact Information

James J. Choi
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
David I. Laibson (Contact Author)
Harvard University - Department of Economics ( email )
Littauer Center
Room M-14
Cambridge, MA 02138
United States
617-496-3402 (Phone)
617-495-8570 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Brigitte Madrian
Harvard University - Harvard Kennedy School (HKS) ( email )
79 John F. Kennedy Street
Cambridge, MA 02138
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Andrew Metrick
Yale School of Management ( email )
135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States
(203)-432-3069 (Phone)
HOME PAGE: http://mba.yale.edu/faculty/profiles/metrick.shtml

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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