Employees' Investment Decisions about Company Stock

James Choi, David Laibson, Brigitte Madrian and Andrew Metrick

No 10228, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the relationship between past returns on a company's stock and the level of investment in that stock by the participants in that company's 401(k) plan. Using data on 94,191 plan participants, we analyze several different decision points: the initial fraction of savings allocated to company stock, the changes in this fraction, and the reallocations of portfolio holdings across different asset classes. Like Benartzi (2001), we find that high past returns on company stock induce participants to allocate more of their contributions to company stock. We also find, however, that high returns on company stock have the opposite effect on reallocations of portfolio holdings, with high returns leading to shifts away from company stock and into other forms of equity. Overall, for company stock decisions, participants in our sample appear to be momentum investors when making contribution decisions and contrarian investors when making trading decisions.

JEL-codes: E2 G1 (search for similar items in EconPapers)
Date: 2004-01
New Economics Papers: this item is included in nep-cfn, nep-fin and nep-mac
Note: AP AG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Published as Mitchell, Olivia S. and Stephen P. Utkus (eds.) Pension Design and Structure: New Lessons from Behavioral Finance. Oxford: Oxford University Press, 2004.

Downloads: (external link)
http://www.nber.org/papers/w10228.pdf (application/pdf)

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:10228

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10228

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 ().