What Drives Variation in Investor Portfolios? Evidence from Retirement Plans

88 Pages Posted: 20 Dec 2021 Last revised: 13 Jun 2022

See all articles by Mark Egan

Mark Egan

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

Alexander MacKay

Harvard University - Business School (HBS)

Hanbin Yang

Harvard University

Multiple version iconThere are 2 versions of this paper

Date Written: June 10, 2022

Abstract

We document new patterns in investment behavior using a comprehensive dataset of 401(k) plans from 2009 through 2019. We show that there is substantial heterogeneity in asset allocation across plans, and that these differences are systematically predictable by sector of employment and demographic characteristics. For example, higher income and education is associated with more exposure to equities, while a greater share of minorities and retirees is associated with less equity exposure. These patterns cannot be rationalized by differences in investment options or plan participation. To understand observed investment behavior, we use a revealed preference approach that allows us to recover heterogeneity in investors' (subjective) expectations and risk preferences. We find that differences in expectations play an important role in explaining portfolios. Further, we show that investors appear to form expectations based on local sources of information such as county-level GDP growth, home prices, and employer past performance. Overall, our findings are consistent with a model in which heterogeneity in investor expectations reflects idiosyncratic experiences and local environments.

Keywords: Stock Market Expectations, Demand Estimation, Retirement Planning, Defined Contribution Plans, 401(k)

JEL Classification: G11, G12, G40, G51, J32, D14

Suggested Citation

Egan, Mark and MacKay, Alexander and Yang, Hanbin, What Drives Variation in Investor Portfolios? Evidence from Retirement Plans (June 10, 2022). Available at SSRN: https://ssrn.com/abstract=3988281 or http://dx.doi.org/10.2139/ssrn.3988281

Mark Egan

Harvard University - Business School (HBS) ( email )

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National Bureau of Economic Research (NBER) ( email )

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Alexander MacKay (Contact Author)

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

HOME PAGE: http://alexandermackay.org/

Hanbin Yang

Harvard University ( email )

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