The Cost of Owning Employer Stocks: Lessons from Taiwan
44 Pages Posted: 15 Mar 2006
There are 2 versions of this paper
The Cost of Owning Employer Stocks: Lessons from Taiwan
Date Written: March 2006
Abstract
Using data on all employees at listed companies in Taiwan, where pension plans were rare, we find that bias toward employer stocks is generic to individual investor decisionmaking, but not limited to retirement plans. 71 percent of sample employees invest in employer stocks and the employer stocks make up on average 47 percent of employee equity portfolios. The under-diversification resulting from the bias toward employer stocks is highly costly. Holding current portfolio risk constant, employees forego 4.89 percent per annum in raw returns by investing in employer stocks, which represents 39.74 percent of their average 1998 salary income. Our findings have important implications for social security reform and retirement account management.
Keywords: Employer stock, retirement, pension reform, investor behavior
JEL Classification: G12, G23, J26
Suggested Citation: Suggested Citation
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