Investor Inattention: A Hidden Cost of Choice in Pension Plans?

19 Pages Posted: 29 Jan 2015

See all articles by Magnus Dahlquist

Magnus Dahlquist

Stockholm School of Economics; Swedish House of Finance

Jose Vicente Martinez

University of Connecticut

Multiple version iconThere are 2 versions of this paper

Date Written: January 2015

Abstract

We investigate inattention on the part of pension plan participants using a dataset covering savings in Sweden's Premium Pension System. These data permit direct comparison of the investment behaviours of pension and retail mutual fund investors. Unlike retail mutual fund investors, pension investors do not seem to react to past fund performance. This behaviour means that pension investors face a greater risk of being caught in poorly performing funds. Our evidence suggests that inertia and inattention to past performance may translate into poorer investment results for pension investors. We discuss a potential change in the design of defined contribution pension schemes that may mitigate costs for inattentive investors while maintaining flexibility for attentive investors.

Keywords: flows, inertia, pension plan design, performance, redemptions

Suggested Citation

Dahlquist, Magnus and Martinez, Jose Vicente, Investor Inattention: A Hidden Cost of Choice in Pension Plans? (January 2015). European Financial Management, Vol. 21, Issue 1, pp. 1-19, 2015, Available at SSRN: https://ssrn.com/abstract=2557138 or http://dx.doi.org/10.1111/j.1468-036X.2013.12008.x

Magnus Dahlquist (Contact Author)

Stockholm School of Economics ( email )

Drottninggatan 98
Stockholm, SE-111 60
Sweden

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Jose Vicente Martinez

University of Connecticut ( email )

2100 Hillside Road, Unit 1041
Storrs, CT 06269
United States

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