Source: www.economics.harvard.edu
Topic: Stock Investment
Sort Desciption: company-stock investment. In the next section, we describe the data in detail and provide summary statistics. about the three plans used in our study. ...
Content Inside: Employees’ Investment Decisions about Company Stock James J. Choi Harvard University David Laibson Harvard University and NBER Brigitte Madrian University of Pennsylvania and NBER Andrew Metrick University of Pennsylvania and NBER Date: July 28, 2003 ABSTRACT: We study the relationship between past returns on a company’s stock and the level of investment in that stock by the participants in that company’s 401(k) plan. Using data on 94,191 plan participants, we analyze several different decision points: the initial fraction of savings allocated to company stock, the changes in this fraction, and the reallocations of portfolio holdings across different asset classes. Like Benartzi (2001), we find that high past returns on company stock induce participants to allocate more of their contributions to company stock. We also find, however, that high returns on company stock have the opposite effect on reallocations of portfolio holdings, with high returns leading to 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 and contrarian investors when making trading decisions. Choi, Laibson, Madrian, and Metrick July 28, 2003 2 Introduction Recent high-profile cases have illustrated the dangers of employee investment in company stock. These debacles are unlikely to be the last ones, or even the most severe. Companies with more than 50 percent of retirement assets in company stock are common, and fractions over 80 percent exist at such large companies as Procter & Gamble, Anheuser-Busch, and Pfizer. 1 The concentration of retirement wealth in company stock is a clear violation of diversification principles. Recently, several studies have quantified the economic costs of this concentration. Meulbroek (2002) uses a Sharpe-ratio approach and finds that the average diversification cost of company stock is about 42% of ...
employee investments, employees investments and risks