An Analysis of How Individuals React to Market Returns in One 401(K) Plan

Posted: 11 Jun 2008

See all articles by Julie R. Agnew

Julie R. Agnew

College of William and Mary - Mason School of Business

Date Written: April 2004

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.

Suggested Citation

Richardson Agnew, Julie, An Analysis of How Individuals React to Market Returns in One 401(K) Plan (April 2004). Available at SSRN: https://ssrn.com/abstract=1142893

Julie Richardson Agnew (Contact Author)

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

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