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It Pays to Set the Menu: Mutual Fund Investment Options in 401(k) Plans
Author(s) -
POOL VERONIKA K.,
SIALM CLEMENS,
STEFANESCU IRINA
Publication year - 2016
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/jofi.12411
Subject(s) - undo , mutual fund , investment (military) , business , set (abstract data type) , finance , plan (archaeology) , closed end fund , fund of funds , service (business) , stable value fund , actuarial science , fund administration , marketing , computer science , political science , archaeology , politics , market liquidity , law , history , programming language , operating system
ABSTRACT This paper investigates whether mutual fund families acting as service providers in 401(k) plans display favoritism toward their own affiliated funds. Using a hand‐collected data set on the menu of investment options offered to plan participants, we show that fund deletions and additions are less sensitive to prior performance for affiliated than unaffiliated funds. We find no evidence that plan participants undo this affiliation bias through their investment choices. Finally, we find that the subsequent performance of poorly performing affiliated funds indicates that this favoritism is not information driven.