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The Inattentive Participant: Portfolio Trading Behavior in 401(K) Plans

40 Pages Posted: 19 Feb 2008  

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Gary R. Mottola

Research Director FINRA Foundation

Stephen P. Utkus

Takeshi Yamaguchi

University of Pennsylvania - The Wharton School

Date Written: June 2006

Abstract

Most workers in defined contribution retirement plans are inattentive portfolio managers: only a few engage in any trading at all, and only a tiny minority trades actively. Using a rich new dataset on 1.2 million workers in over 1,500 plans, we find that most 401(k) plan participants are characterized by profound inertia. Almost all participants (80%) initiate no trades, and an additional 11% makes only a single trade, in a two-year period. Even among traders, portfolio turnover rates are one-third the rate of professional money managers. Those who trade in their 401(k) plans are more affluent older men, with higher incomes and longer job tenure. They tend to use the internet for 401(k) account access, hold a larger number of investment options, and are more likely to hold active equity funds rather than index or lifecycle funds. Some plan features, including offering own-employer stock, also raise trading levels.

Suggested Citation

Mitchell, Olivia S. and Mottola, Gary R. and Utkus, Stephen P. and Yamaguchi, Takeshi, The Inattentive Participant: Portfolio Trading Behavior in 401(K) Plans (June 2006). Michigan Retirement Research Center Research Paper No. WP 2006-115. Available at SSRN: https://ssrn.com/abstract=1094834 or http://dx.doi.org/10.2139/ssrn.1094834

Olivia S. Mitchell (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gary R. Mottola

Research Director FINRA Foundation ( email )

1735 K ST NW
Washington, DC 20006
United States

HOME PAGE: http://www.finrafoundation.org

Takeshi Yamaguchi

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

No contact information is available for Stephen P. Utkus

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