The Impact of Investment Behaviour for Individual Welfare

33 Pages Posted: 4 Dec 2013

See all articles by Thomas Post

Thomas Post

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

Helmut Gründl

Goethe University Frankfurt - Department of Finance; International Center for Insurance Regulation

Joan T. Schmit

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

Anja Zimmer

German Insurance Association

Date Written: January 2014

Abstract

The industrialized world has experienced 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 behaviour is suboptimal. Using micro‐level US data, we compare the optimal utility computed using a lifecycle model with the actual utility as reflected in empirical asset allocation choices. Average estimated welfare costs are below 3% of households' endowment (assets and human capital); yet specific population groups experience higher welfare costs.

Suggested Citation

Post, Thomas and Gründl, Helmut and Schmit, Joan T. and Zimmer, Anja, The Impact of Investment Behaviour for Individual Welfare (January 2014). Economica, Vol. 81, Issue 321, pp. 15-47, 2014. Available at SSRN: https://ssrn.com/abstract=2362584 or http://dx.doi.org/10.1111/ecca.12036

Thomas Post

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 - Department of Finance ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60323
Germany

HOME PAGE: http://https://www.wiwi.uni-frankfurt.de/en/departments/finance/home.html

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

German Insurance Association

Germany

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