NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Employees' Investment Decisions about Company Stock

James J. Choi, David Laibson, Brigitte Madrian, Andrew Metrick

NBER Working Paper No. 10228
Issued in January 2004
NBER Program(s):   AP   AG

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.

download in pdf format
   (399 K)

email paper

A non-technical summary of this paper is available in the NBER Bulletin on Aging and Health. You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (399 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10228

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

Users who downloaded this paper also downloaded these:
Choi, Laibson, Madrian, and Metrick For Better or for Worse: Default Effects and 401(k) Savings Behavior
Blanchard, Rhee, and Summers w3370 The Stock Market, Profit and Investment
Gentry, Jones, and Mayer w10850 Do Stock Prices Really Reflect Fundamental Values? The Case of REITs
Liang and Weisbenner w9131 Investor Behavior and the Purchase of Company Stock in 401(k) Plans - The Importance of Plan Design
Choi, Laibson, and Madrian w11554 $100 Bills on the Sidewalk: Suboptimal Investment in 401(k) Plans
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us