Employees' Investment Decisions About Company Stock

29 Pages Posted: 23 Jan 2004 Last revised: 11 Sep 2009

See all articles by James J. Choi

James J. Choi

Yale School of Management; National Bureau of Economic Research (NBER)

David Laibson

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Brigitte C. Madrian

Brigham Young University Marriott School of Business; National Bureau of Economic Research (NBER)

Andrew Metrick

Yale School of Management; National Bureau of Economic Research (NBER); Yale University - Yale Program on Financial Stability

Multiple version iconThere are 2 versions of this paper

Date Written: January 2004

Abstract

We study the relationship between past returns on a company's stock and the level of investment in that stock by the participants in that company's 401(k) plan. Using data on 94,191 plan participants, we analyze several different decision points: the initial fraction of savings allocated to company stock, the changes in this fraction, and the reallocations of portfolio holdings across different asset classes. Like Benartzi (2001), we find that high past returns on company stock induce participants to allocate more of their contributions to company stock. We also find, however, that high returns on company stock have the opposite effect on reallocations of portfolio holdings, with high returns leading to shifts away from company stock and into other forms of equity. Overall, for company stock decisions, participants in our sample appear to be momentum investors when making contribution decisions and contrarian investors when making trading decisions.

Suggested Citation

Choi, James J. and Laibson, David I. and Madrian, Brigitte C. and Metrick, Andrew, Employees' Investment Decisions About Company Stock (January 2004). NBER Working Paper No. w10228. Available at SSRN: https://ssrn.com/abstract=486232

James J. Choi

Yale School of Management ( email )

135 Prospect Street
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National Bureau of Economic Research (NBER) ( email )

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David I. Laibson (Contact Author)

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Brigitte C. Madrian

Brigham Young University Marriott School of Business ( email )

Provo, UT 84602
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Andrew Metrick

Yale School of Management ( email )

165 Whitney Avenue
New Haven, CT 06511
United States
(203)-432-3069 (Phone)

HOME PAGE: http://faculty.som.yale.edu/andrewmetrick/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yale University - Yale Program on Financial Stability

165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States

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