Year: 2025
Type: article
Abstract: ABSTRACT We study the role of risk preferences and frictions in portfolio choice using variation in 401(k) default options. Patterns of active choice in response to different default funds imply that, absent participation frictions, 94% of investors prefer holding stocks, with an equity share of retirement wealth declining with age—patterns markedly different from observed allocations. We use this quasi‐experiment to estimate a life‐cycle model and find a relative risk aversion of 2.5, elasticity of intertemporal substitution (EIS) of 0.25, and $160 portfolio adjustment cost. The results suggest that low levels of stock market participation in retirement accounts are due to participation frictions rather than nonstandard preferences such as loss aversion.
Source: The Journal of Finance
DOI: 10.1111/jofi.70013
Authors: TAHA CHOUKHMANE, TIM DE SILVA
Institutions: Massachusetts Institute of Technology, Stanford University
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $4,430
OpenAlex ID: W4417447253