Winners and Losers: 401(K) Trading and Portfolio Performance

32 Pages Posted: 6 Nov 2006

See all articles by Takeshi Yamaguchi

Takeshi Yamaguchi

University of Pennsylvania - The Wharton School

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Gary R. Mottola

Research Director FINRA Foundation

Stephen P. Utkus

Vanguard Center for Investor Research

Date Written: June 1, 2007

Abstract

Few previous studies have explored how individuals manage their defined contribution (DC) pension plan assets, though these plans constitute an increasingly important component of retirement wealth. Using a valuable new dataset on over one million active 401(k) plan participants in a wide range of plans, we assess the impact of trading on investment performance in DC plans. We find that, in aggregate, the risk-adjusted returns of traders are no different than those of nontraders. Yet certain types of trading such as periodic rebalancing are beneficial, while high-turnover trading is costly. Interestingly, those who hold only balanced or lifecycle funds, whom we call passive rebalancers, earn the highest risk-adjusted returns. These findings should interest participants in such plans, fiduciaries responsible for designing DC pensions, and regulators of the retirement saving environment.

JEL Classification: G11, G12, G23

Suggested Citation

Yamaguchi, Takeshi and Mitchell, Olivia S. and Mottola, Gary R. and Utkus, Stephen P., Winners and Losers: 401(K) Trading and Portfolio Performance (June 1, 2007). Pension Research Council Working Paper No. 2006-26; Michigan Retirement Research Center Research Paper No. WP 2007-154. Available at SSRN: https://ssrn.com/abstract=942378 or http://dx.doi.org/10.2139/ssrn.942378

Takeshi Yamaguchi (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Olivia S. Mitchell

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Gary R. Mottola

Research Director FINRA Foundation ( email )

1735 K ST NW
Washington, DC 20006
United States

HOME PAGE: http://www.finrafoundation.org

Stephen P. Utkus

Vanguard Center for Investor Research ( email )

100 Vanguard Boulevard, M38
Malvern, PA 19355
United States
610-669-6308 (Phone)

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