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Asynchronous risk: retirement savings, equity markets, and unemployment

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  • SELIGMAN, JASON S.
  • WENGER, JEFFREY B.

Abstract

Retirement savings in defined contribution plans vary as a result of the timing and frequency of unemployment spells. We hypothesize that unemployment is coincident with negative shocks to equities prices, implying workers may systematically miss investment opportunities. First we match historic stock returns to unemployment hazards by gender, and earnings quartile. Next we test the relationship between unemployment, equity returns, and pension savings, by repeated simulation. Finally, we find that the timing of unemployment spells amplifies retirement savings losses on average for all worker-types in our analysis. Timing impacts are observed to be largest for high earnings workers and to increase with unemployment losses disproportionately.

Suggested Citation

  • Seligman, Jason S. & Wenger, Jeffrey B., 2006. "Asynchronous risk: retirement savings, equity markets, and unemployment," Journal of Pension Economics and Finance, Cambridge University Press, vol. 5(3), pages 237-255, November.
    • Handle: RePEc:cup:jpenef:v:5:y:2006:i:03:p:237-255_00
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    Cited by:

    1. Fichtner, Jason & Seligman, Jason, 2018. "Saving Social Security Disability Insurance: Designing and Testing Reforms through Demonstration Projects," Working Papers 07625, George Mason University, Mercatus Center.
    2. Seligman, Jason S. & Bose, Rana, 2012. "Learning by doing: Active employer sponsored retirement savings plan participation and household wealth accumulation," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(2), pages 162-172.
    3. Jeffrey Wenger & Christian E. Weller, 2008. "The Interplay between Labor and Financial Markets: What are the Implications for Defined Contribution Accounts?," Working Papers wp162, Political Economy Research Institute, University of Massachusetts at Amherst.

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