The Overlooked Momentum Traders in 401(k) Plans
40 Pages Posted: 9 Jun 2015
Date Written: June 8, 2015
Using a unique dataset on over one million 401(k) traders, we investigate momentum trading in 401(k) plans. We identify momentum traders in each quarter and evaluate how these traders perform. Results indicate the existence of momentum traders. However, there is no evidence that they successfully improve their portfolio performance. Instead, momentum sellers sell the outperformed funds. Overall, momentum traders could lose up to 2.14% per year. In seeking to explain such losses, we observe that 401(k) traders follow a naïve momentum strategy. They don’t have the ability to select funds with momentum investing styles but, instead, simply chase past returns.
Keywords: momentum; trading; portfolio performance; pension fund management; 401(k) plan
JEL Classification: G11, G12, G23
Suggested Citation: Suggested Citation