The Reluctant Retirement Trader: Do Asset Returns Overcome Inertia?

Networks Financial Institute: Working Paper Series: 2012-WP-01

36 Pages Posted: 21 Jun 2012

See all articles by Julie R. Agnew

Julie R. Agnew

College of William and Mary - Mason School of Business

Pierluigi Balduzzi

Boston College - Carroll School of Management

Date Written: June 21, 2012

Abstract

We study a new and unique data set of daily aggregate transfers of funds between mutual funds held in 401(k) accounts. We find that 401(k) transfers correlate strongly and positively with contemporaneous daily returns in the corresponding asset class. GMM estimation based on the identification-through-heteroskedasticity methodology attributes part of this correlation to investors following positive-feedback strategies. A simulation shows that these strategies may lead to substantial utility costs. These findings have implications for 401(k) plan sponsors.

Suggested Citation

Richardson Agnew, Julie and Balduzzi, Pierluigi, The Reluctant Retirement Trader: Do Asset Returns Overcome Inertia? (June 21, 2012). Networks Financial Institute: Working Paper Series: 2012-WP-01. Available at SSRN: https://ssrn.com/abstract=2088859 or http://dx.doi.org/10.2139/ssrn.2088859

Julie Richardson Agnew (Contact Author)

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

Pierluigi Balduzzi

Boston College - Carroll School of Management ( email )

Department of Finance
140 Commonwealth Avenue - Fulton Hall 438
Chestnut Hill, MA 02467
United States
617-552-3976 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www.bc.edu/bc_org/avp/csom/faculty/

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