Investment Option Switching Behaviour and Impact for Pension Fund Members Around the COVID Pandemic

27 Pages Posted: 24 Aug 2023 Last revised: 10 Mar 2024

See all articles by Adam Butt

Adam Butt

Australian National University - Research School of Finance, Actuarial Studies & Statistics

Gaurav Khemka

Australian National University (ANU)

William Lim

Australian National University (ANU)

Geoff Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics; The Conexus Institute

Shang Wu

Aware Super

Date Written: March 8, 2024

Abstract

We study the switching of investment options by defined contribution pension fund members using a unique dataset provided by a large Australian superannuation fund that spans the market volatility associated with the COVID-19 pandemic. We find that both the magnitude and direction of switching activity is primarily related to market conditions but is moderated by member characteristics. Switching activity appears reactive to market movements, with a spike in defensive switches during the COVID-related market sell-off and other minor market downturns, and a majority of growth switches in other periods. Switching activity has a negative impact on the balances of members who switch, which appears associated with a tendency to chase returns and switch at inopportune times. Relating switches to member characteristics reveals a higher propensity for more engaged members to switch, members nearing retirement age to make defensive switches, males to make growth switches, and the starting portfolio position to influence the likely direction of switching. Our analysis can assist pension funds to formulate initiatives that may help prevent members from making detrimental switches.

Keywords: Pension funds, superannuation, investment switching, individual behaviour

JEL Classification: G11, G23, G41, G51, D14

Suggested Citation

Butt, Adam and Khemka, Gaurav and Lim, William and Warren, Geoffrey J. and Wu, Shang, Investment Option Switching Behaviour and Impact for Pension Fund Members Around the COVID Pandemic (March 8, 2024). Available at SSRN: https://ssrn.com/abstract=4537938 or http://dx.doi.org/10.2139/ssrn.4537938

Adam Butt (Contact Author)

Australian National University - Research School of Finance, Actuarial Studies & Statistics ( email )

Canberra, Australian Capital Territory 2601
Australia

Gaurav Khemka

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

William Lim

Australian National University (ANU) ( email )

Canberra, Australian Capital Territory 2601
Australia

Geoffrey J. Warren

Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )

CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia

The Conexus Institute ( email )

Sydney, NSW, 2000
Australia

Shang Wu

Aware Super ( email )

388 George St
Sydney, NSW 2000
Australia

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