Working Paper: NBER ID: w19569
Authors: Clemens Sialm; Laura Starks; Hanjiang Zhang
Abstract: Participants in defined contribution (DC) retirement plans rarely adjust their portfolio allocations, suggesting that their investment choices and consequent money flows are sticky and not discerning. Yet, the participants' inertia could be offset by the DC plan sponsors, who adjust the plan's investment options. We examine these countervailing influences on flows into U.S. mutual funds. We find that flows into funds that derive from DC assets are more volatile and exhibit more performance sensitivity than non-DC flows, primarily due to the adjustments of the investment options by the plan sponsors. Thus, DC retirement money is less sticky and more discerning.
Keywords: Defined Contribution Plans; Mutual Funds; Investment Flows; Plan Sponsors; Performance Sensitivity
JEL Codes: G02; G18; G23; G28; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Plan Sponsor Actions (G52) | Fund Flows (G23) |
| Participant Actions (C92) | Fund Flows (G23) |
| DC Flows (Y10) | Fund Performance Sensitivity (G19) |
| Non-DC Flows (F29) | Fund Performance Sensitivity (G19) |
| DC Flows (Y10) | Future Fund Performance (G23) |
| Non-DC Flows (F29) | Future Fund Performance (G23) |