Retail Financial Innovation and Stock Market Dynamics: The Case of Target Date Funds

Jonathan Parker, Antoinette Schoar and Yang Sun

No 28028, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Target Date Funds (TDFs) are designed to provide unsophisticated or inattentive investors with age-appropriate exposures to different asset classes like stocks and bonds. The rise of TDFs has moved a significant share of retirement investors into macro-contrarian strategies that sell stocks after relatively good stock market performance. This rebalancing drives contrarian flows across equity mutual funds held by TDFs, stabilizing their funding, and reduces stock returns for stocks disproportionately held by these funds when stock market returns are relatively high. Continued growth in TDFs and similar investment products may dampen stock market volatility and increase the transmission of shocks across asset classes.

JEL-codes: G12 G23 G51 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-mst
Note: AP CF EFG ME
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Citations: View citations in EconPapers (5)

Published as JONATHAN A. PARKER & ANTOINETTE SCHOAR & YANG SUN, 2023. "Retail Financial Innovation and Stock Market Dynamics: The Case of Target Date Funds," The Journal of Finance, vol 78(5), pages 2673-2723.

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