Wharton Pension Research Council Working Papers

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Working Paper

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Most 401(k) participants did not trade much in their retirement accounts during the recent financial crisis. Yet the proportion of plan participants trading did rise by almost a quarter and the mean portfolio fraction shifted away from equities rose almost eightfold during the crisis. Traders’ responsiveness to monthly stock market volatility also more than doubled, contributing to a sharp increase in the sale of equities. At the same time, traders’ equity selling was offset by their reaction to returns. They shifted from a momentum approach pre-crisis selling equities on weak returns, to a contrarian strategy during the crisis and buying stocks ‘on the dips.’ Also firsttime traders during the crisis reacted more negatively to volatility than did experienced traders; these inexperienced traders were nevertheless, and paradoxically, more likely to be contrarian in their return response. Finally, participant plan statements sent during the crisis encouraged net shifts into equities, thereby acting as a modest stabilizing factor.


The published version of this Working Paper may be found in the 2012 publication: Reshaping Retirement Security: Lessons from the Global Financial Crisis.

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Copyright/Permission Statement

All findings, interpretations, and conclusions of this paper represent the views of the authors and not those of the Wharton School or the Pension Research Council. © 2011 Pension Research Council of the Wharton School of the University of Pennsylvania. All rights reserved.


The authors thank Peter Brady, Gregory Nini, Nicholas Souleles, Mark Warshawsky, and seminar participants at the University of Pennsylvania for helpful comments; they are also grateful to Vanguard for the provision of recordkeeping data under restricted access conditions. For research support they acknowledge the Pension Research Council at the Wharton School, the Bradley Foundation, and Vanguard.

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Economics Commons



Date Posted: 28 June 2019