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An Analysis Of How Individuals React To Market Returns In One 401(k) Plan

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Author Info
Julie Agnew () (Center for Retirement Research at Boston College)
Abstract

Using a unique dataset of 401(k) trades, this paper's results suggest that in most cases only equity fund outflows, not inflows, are significantly related to their own past fund returns. Also, the strong correlation between flows and lagged returns is only significant when fund returns are extremely low. Furthermore, most trades (48 percent) are either from equities to risk-free assets, or vice versa. Finally, it is only the flows from equities to GICs that show a strong correlation with one-day lagged returns. This suggests that many trades are "flights to safety" not return chasing.

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Paper provided by Center for Retirement Research in its series Working Papers, Center for Retirement Research at Boston College with number 2004-13.

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Date of creation: 10 May 2004
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Handle: RePEc:crr:crrwps:2004-13

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  1. William N. Goetzmann & Massimo Massa, 1999. "Daily Momentum And Contrarian Behavior Of Index Fund Investors," Yale School of Management Working Papers ysm13, Yale School of Management. [Downloadable!]
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  2. Edelen, Roger M. & Warner, Jerold B., 2001. "Aggregate price effects of institutional trading: a study of mutual fund flow and market returns," Journal of Financial Economics, Elsevier, vol. 59(2), pages 195-220, February. [Downloadable!] (restricted)
  3. De Long, J Bradford, et al, 1990. " Positive Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance, American Finance Association, vol. 45(2), pages 379-95, June. [Downloadable!] (restricted)
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  4. Jerry A. Hausman & Bronwyn H. Hall & Zvi Griliches, 1984. "Econometric Models for Count Data with an Application to the Patents-R&D Relationship," NBER Technical Working Papers 0017, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. William N. Goetzmann & Massimo Massa, 2003. "Index Funds and Stock Market Growth," Journal of Business, University of Chicago Press, vol. 76(1), pages 1-28, January. [Downloadable!]
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  6. William N. Goetzmann & Massimo Massa & K. Geert Rouwenhorst, 2004. "Behavioral Factors in Mutual Fund Flows," Yale School of Management Working Papers ysm8, Yale School of Management. [Downloadable!]
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  7. Julie Agnew & Pierluigi Balduzzi & Annika Sundén, 2003. "Portfolio Choice and Trading in a Large 401(k) Plan," American Economic Review, American Economic Association, vol. 93(1), pages 193-215, March. [Downloadable!]
  8. Balduzzi, Pierluigi & Bertola, Giuseppe & Foresi, Silverio, 1995. " Asset Price Dynamics and Infrequent Feedback Trades," Journal of Finance, American Finance Association, vol. 50(5), pages 1747-66, December. [Downloadable!] (restricted)
  9. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1149-1187, November. [Downloadable!] (restricted)
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