Download this Paper Open PDF in Browser

The Impact of Investment Behavior for Individual Welfare

47 Pages Posted: 7 May 2008 Last revised: 15 Sep 2012

Thomas Post

Maastricht University - School of Business and Economics - Department of Finance; Netspar

Helmut Gründl

Goethe University Frankfurt - Research Center SAFE; International Center for Insurance Regulation

Joan T. Schmit

University of Wisconsin - Madison - Department of Actuarial Science, Risk Management and Insurance

Anja Zimmer

Humboldt University of Berlin - School of Business and Economics

Date Written: September 14, 2012

Abstract

The industrialized world experiences a demographic shift that is straining public pension systems. Employer-sponsored pension plans change from defined benefit to defined contribution. More emphasis is put on individually managed retirement funds. One concern with this movement is the potential negative effect on individual welfare if households’ investment behavior is suboptimal. Using micro-level U.S. data, we compare the optimal utility computed using a life-cycle model with the actual utility as reflected in empirical asset allocation choices. Average estimated welfare costs estimated are below three percent of households’ endowment (assets and human capital); yet specific population groups experience higher welfare costs.

Keywords: Asset Allocation, Investment Behavior, Welfare Costs, Life-Cycle Models

JEL Classification: D14, D91, G11

Suggested Citation

Post, Thomas and Gründl, Helmut and Schmit, Joan T. and Zimmer, Anja, The Impact of Investment Behavior for Individual Welfare (September 14, 2012). Available at SSRN: https://ssrn.com/abstract=1129143 or http://dx.doi.org/10.2139/ssrn.1129143

Thomas Post (Contact Author)

Maastricht University - School of Business and Economics - Department of Finance ( email )

Tongersestraat 53
Maastricht, 6200 MD
Netherlands
+31 43 38 83899 (Phone)
+31 43 38 84875 (Fax)

HOME PAGE: http://www.thomas-post.com

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.netspar.nl

Helmut Gründl

Goethe University Frankfurt - Research Center SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.finance.uni-frankfurt.de/gruendl/index.php?lg=0

International Center for Insurance Regulation ( email )

House of Finance
Campus Westend, Goethe University
Frankfurt am Main, D-60323
Germany

HOME PAGE: http://www.icir.de

Joan T. Schmit

University of Wisconsin - Madison - Department of Actuarial Science, Risk Management and Insurance ( email )

Madison, WI
United States
608-262-4240 (Phone)

Anja Zimmer

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

Paper statistics

Downloads
283
Rank
89,386
Abstract Views
1,817