Barking Up The Wrong Tree: Return-chasing in 401(k) Plans

56 Pages Posted: 5 Jan 2020 Last revised: 17 Dec 2020

See all articles by Anh Tran

Anh Tran

University of Connecticut

Pingle Wang

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance

Date Written: November 16, 2019

Abstract

This paper examines investors' retirement savings allocation using a hand-collected dataset on firm-level employees' holdings in 401(k) plans. We document the median investor's return-chasing behavior, the heterogeneous investing styles across wealth levels, and the lack of financial literacy among participants. 83% of the employees hold only 39% of total wealth and chase risk-unadjusted returns when investing in mutual funds and choosing between company stock and funds, leaving substantial money on the table. In contrast, the remaining 17% of employees with a high level of financial sophistication select mutual funds by the CAPM model and exhibit contrarian investing between stock and funds.

Keywords: Mutual funds, defined contribution, fund flows, wealth inequality, financial literacy, 401(k)

JEL Classification: D14, G11, G12, G23, J20, J26

Suggested Citation

Tran, Anh and Wang, Pingle, Barking Up The Wrong Tree: Return-chasing in 401(k) Plans (November 16, 2019). Available at SSRN: https://ssrn.com/abstract=3502862 or http://dx.doi.org/10.2139/ssrn.3502862

Anh Tran

University of Connecticut ( email )

CT
United States

Pingle Wang (Contact Author)

University of Texas at Dallas, Naveen Jindal School of Management, Department of Finance ( email )

800 West Campbell
Richarson, TX 75080
United States

HOME PAGE: http://www.wangpingle.com

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
98
Abstract Views
1,143
rank
329,952
PlumX Metrics