Stock Demand and Price Impact of 401(k) Plans

64 Pages Posted: 12 Jan 2023 Last revised: 24 May 2023

See all articles by Riccardo Sabbatucci

Riccardo Sabbatucci

Stockholm School of Economics; Swedish House of Finance

Andrea Tamoni

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Song Xiao

London School of Economics & Political Science (LSE)

Date Written: January 11, 2023

Abstract

We estimate a demand system linking 401(k) plans ownership of individual stocks and funds to their demand for equities, and quantify the effect of 401(k) stock holdings on investor behavior. We introduce a new variable, stock-level 401(k) ownership, and find it to be a key determinant of investor demand, with a one standard deviation increase in 401(k) ownership leading to 11-19% increase in stock demand. We also estimate the equilibrium price impact of a change in stock-level 401(k) ownership to be positive and increasing over time, consistent with the shift from active to passive investing. Lastly, we document that funds managing a larger fraction of 401(k) assets tilt their portfolios toward winners, high beta and long duration stocks, and they hold less cash.

Keywords: 401(K) Plans, Stock Demand and 401(K) Ownership, Demand Based Asset Pricing, Price Impact of 401(K) Plans

JEL Classification: G12, G23

Suggested Citation

Sabbatucci, Riccardo and Tamoni, Andrea and Xiao, Song, Stock Demand and Price Impact of 401(k) Plans (January 11, 2023). Swedish House of Finance Research Paper No. 23-08, Available at SSRN: https://ssrn.com/abstract=4322784 or http://dx.doi.org/10.2139/ssrn.4322784

Riccardo Sabbatucci

Stockholm School of Economics ( email )

PO Box 6501
Stockholm, 11383
Sweden

Swedish House of Finance

Drottninggatan 98
111 60 Stockholm
Sweden

Andrea Tamoni (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

1 Washington Park
Newark, NJ 07102
United States

Song Xiao

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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

Paper statistics

Downloads
145
Abstract Views
614
Rank
319,507
PlumX Metrics