Wharton Pension Research Council Working Papers

Document Type

Working Paper

Date of this Version



We study the relationship between past returns on a company’s stock and the level of investment in that stock by participants in that firm’s 401(k) plan. Several different decision points are of interest: the initial fraction of savings allocated to company stock, the changes in this fraction, and the reallocations of portfolio holdings across different asset classes. We find that high past returns on company stock do induce participants to allocate more of their new contributions to company stock. By contrast, high company stock have the opposite effect on reallocations of portfolio holdings: high returns produce portfolio 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, but they are contrarian investors when making trading decisions.


The published version of this Working Paper may be found in the 2004 publication: Pension Design and Structure: New Lessons from Behavioral Finance.

Working Paper Number


Copyright/Permission Statement

©2003 Pension Research Council of the Wharton School of the University of Pennsylvania. All Rights Reserved


We thank Hewitt Associates for their help in providing the data. We are particularly grateful to Lori Lucas and Jim McGhee, two of our many contacts at Hewitt. Choi acknowledges financial support from a National Science Foundation Graduate Research Fellowship. Laibson and Madrian acknowledge financial support from the National Institute on Aging (R01-AG-16605 and R29-AG-013020 respectively). Laibson also acknowledges financial support from the MacArthur Foundation.

Included in

Economics Commons



Date Posted: 04 September 2019