DP8744 Individual Investor Activity and Performance

Author(s): Magnus Dahlquist, José Vicente Martinez, Paul Söderlind
Publication Date: January 2012
Keyword(s): 401(k), Coordinated fund changes, Financial advisors, Fire sales
JEL(s): G11, G23, H55
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=8744

We examine the activity and performance of a large panel of individual investors (approximately 70,000 investors and their daily returns over the 2000 to 2010 period) in Sweden's Premium Pension System. We document strong inertia in individuals' choices and changes of mutual funds. We find that active investors outperform passive investors, and that there is a causal effect of fund changes on performance. The outperformance is primarily the result of dynamic fund selection. Activity is beneficial for the individual investor, whereas extreme flows out of mutual funds (which we attribute to financial advisors) affect funds' net asset value negatively for all investors.