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The Cost of Owning Employer Stocks: Lessons From Taiwan

December 7, 2007
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Working Paper by Yi-Tsung Lee, Yu-Jane Liu, and Ning Zhu

Abstract

Using data on all employees at listed companies in Taiwan, we find that the bias toward employer stocks is generic to individual investor decision-making, 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.

elderly man inserting credit card to ATM
elderly man inserting credit card to ATM
Author(s)
Headshot of Yi-Tsung Lee
Yi-Tsung Lee
Headshot of Yu-Jane Liu
Yu-Jane Liu
Headshot of Ning Zhu
Ning Zhu
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Executive Summary
Citation

Lee, , Yu-Jane Liu, and Ning Zhu. 2007. "The Cost of Owning Employer Stocks: Lessons From Taiwan" Working Paper 2007-24. Chestnut Hill, MA: Center for Retirement Research at Boston College.

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Associated Project(s)
  • BC06-S5
Topics
Financing Retirement
Publication Type
Working Paper
Publication Number
WP#2007-24
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