Excessive Extrapolation and the Allocation of 401(k) Accounts to Company Stock

@article{Benartzi2001ExcessiveEA,
  title={Excessive Extrapolation and the Allocation of 401(k) Accounts to Company Stock},
  author={Shlomo Benartzi},
  journal={Journal of Finance},
  year={2001},
  volume={56},
  pages={1747-1764}
}
  • S. Benartzi
  • Published 1 October 2001
  • Business, Economics
  • Journal of Finance
About a third of the assets in large retirement savings plans are invested in company stock, and about a quarter of the "discretionary" contributions are invested in company stock. From a diversification perspective, this is a dubious strategy. This paper explores the role of excessive extrapolation in employees' company stock holdings. I find that employees of firms that experienced the worst stock performance over the last 10 years allocate 10.37 percent of their "discretionary" contributions… 

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