What Drives Investors' Portfolio Choices? Separating Risk Preferences from Frictions

Taha Choukhmane and Tim de Silva

No 32476, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the role of risk preferences and frictions in portfolio choice using variation in 401(k) default options. Patterns of active choice in response to different default funds imply that, absent participation frictions, 94% of investors prefer holding stocks, with an equity share of retirement wealth declining with age—patterns markedly different from observed allocations. We use this quasi-experiment to estimate a life cycle model and find a relative risk aversion of 2, EIS of 0.4, and $200 portfolio adjustment cost. Our results suggest that low levels of stock market participation in retirement accounts are due to participation frictions rather than non-standard preferences such as loss aversion.

JEL-codes: D14 D15 G0 G11 G40 G5 G51 J32 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-fmk, nep-rmg and nep-upt
Note: AG AP CF
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w32476.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:32476

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w32476
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().