The Effects of Information on Individuals' Investment Portfolios

This paper investigates the determinants of holding different types of equities in the context of a 401(k) retirement plan. The decision of holding a given type of equity fund is related to investor characteristics and common effects.The results of this paper should be relevant for academics, in their effort to produce models that may explain or guide actual portfolio choices. The results of this paper should also be useful to policymakers, who may be concerned with the impact of a possible reform of the Social Security system on households’ finances and on financial markets. We find that the average equity portfolio is reasonably allocated: 45% in Large Equities, 32% in Small/Medium Equities, and 22% in International Equities. For most of the investors/year observations, 74% of the observations, investors hold all three equity funds. Hence, for the most part investors take advantage of the diversification options available in the plan.