As a part of our support for academic research concerning participant investment behavior (including our support of research by Professor Shlomo Benartzi of UCLA), we post important academic and industry studies on our website.

We have recently posted a study entitled “Participant Reaction and the Performance of Funds Offered by 401(k) Plans” by Edwin J. Elton and Martin J. Gruber of the Stern School of Business, New York University and Christopher R. Blake Graduate School of Business Administration, Fordham University.

“This is the first study to examine both how well plan administrators select funds for 401(k) plans and how participants react to plan administrator decisions. We find that, on average, administrators select funds that outperform randomly selected funds of the same type. When administrators change offerings, they choose funds that did well in the past, but, after the change, added funds do no better than dropped funds. Plan participants change their allocation decisions in a way that accentuates the changes in allocation caused by returns. The change in participant weights due to the allocation of new money and interfund transfers in about the same size, and in the same direction, as the change due to returns. Participant allocations do no better than naïve allocation rules, such as equal investment in each offering.”

To view or print a copy of the study, please click here.

Source: The Adviser Report