Loyalty-Based Portfolio Choice

Posted: 17 Mar 2009

See all articles by Lauren Cohen

Lauren Cohen

Harvard University - Business School (HBS); National Bureau of Economic Research (NBER)

Date Written: March 2009


I evaluate the effect of loyalty on individuals' portfolio choice using a unique dataset of retirement contributions. I exploit the statutory difference that, in 401(k) plans, stand-alone employees can invest directly in their division, while conglomerate employees must invest in the entire firm, including all unrelated divisions. Consistent with loyalty, employees of stand-alone firms invest 10 percentage points (75%) more in company stock than conglomerate employees. Support is also found using variation in loyalty between different groups of employees, across and within firms. The cost to employees of loyalty is large, amounting to nearly a 20% loss in retirement income.

Keywords: D31, J26, J32

Suggested Citation

Cohen, Lauren, Loyalty-Based Portfolio Choice (March 2009). The Review of Financial Studies, Vol. 22, No. 3, pp. 1213-1245, 2009, Available at SSRN: https://ssrn.com/abstract=1359523 or http://dx.doi.org/hhn012

Lauren Cohen (Contact Author)

Harvard University - Business School (HBS) ( email )

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HOME PAGE: http://www.people.hbs.edu/lcohen

National Bureau of Economic Research (NBER) ( email )

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