Winners and Losers: 401(K) Trading and Portfolio Performance
University of Pennsylvania - The Wharton School
Olivia S. Mitchell
University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)
Gary R. Mottola
Stephen P. Utkus
The Vanguard Group, Inc. - Center for Retirement Research
June 1, 2007
Pension Research Council Working Paper No. 2006-26
Michigan Retirement Research Center Research Paper No. WP 2007-154
Few previous studies have explored how individuals manage their defined contribution (DC) pension plan assets, though these plans constitute an increasingly important component of retirement wealth. Using a valuable new dataset on over one million active 401(k) plan participants in a wide range of plans, we assess the impact of trading on investment performance in DC plans. We find that, in aggregate, the risk-adjusted returns of traders are no different than those of nontraders. Yet certain types of trading such as periodic rebalancing are beneficial, while high-turnover trading is costly. Interestingly, those who hold only balanced or lifecycle funds, whom we call passive rebalancers, earn the highest risk-adjusted returns. These findings should interest participants in such plans, fiduciaries responsible for designing DC pensions, and regulators of the retirement saving environment.
Number of Pages in PDF File: 32
JEL Classification: G11, G12, G23working papers series
Date posted: November 6, 2006
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