Working Paper: CEPR ID: DP8744
Authors: Magnus Dahlquist; Jos Vicente Martinez; Paul Sderlind
Abstract: We examine the activity and performance of a large panel of individual investors (approximately 70,000 investors and their daily returns over the 2000 to 2010 period) in Sweden's Premium Pension System. We document strong inertia in individuals' choices and changes of mutual funds. We find that active investors outperform passive investors, and that there is a causal effect of fund changes on performance. The outperformance is primarily the result of dynamic fund selection. Activity is beneficial for the individual investor, whereas extreme flows out of mutual funds (which we attribute to financial advisors) affect funds' net asset value negatively for all investors.
Keywords: 401k; coordinated fund changes; financial advisors; fire sales
JEL Codes: G11; G23; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| fund changes (G23) | performance (D29) |
| active investors (G24) | performance (D29) |
| number of fund changes (G23) | returns achieved (G12) |
| activity (Y60) | performance (D29) |
| financial advice (G51) | performance (D29) |
| active investors (G24) | passive investors' net asset values (G23) |