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An Analysis of How Individuals React to Market Returns in One 401(k) Plan

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by Julie Agnew

WP#2004-13  

Abstract

Using a unique dataset of 401(k) trades, this paper's results suggest that in most cases only equity fund outflows, not inflows, are significantly related to their own past fund returns. Also, the strong correlation between flows and lagged returns is only significant when fund returns are extremely low. Furthermore, most trades (48 percent) are either from equities to risk-free assets, or vice versa. Finally, it is only the flows from equities to GICs that show a strong correlation with one-day lagged returns. This suggests that many trades are "flights to safety" not return chasing.

For executive summary in PDF

For full paper in PDF 

Julie Agnew is an assistant professor of finance and economics in the William and Mary School of Business Administration. The research reported herein was performed pursuant to a grant from the U.S. Social Security Administration (SSA) to the Center for Retirement Research at Boston College (CRR). The opinions and conclusions are solely those of the authors and should not be construed as representing the opinions or policy of the SSA or any agency of the Federal Government or of the CRR.
Tags: Private Pensions, Working Papers,
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