• Media type: E-Article
  • Title: Excessive Extrapolation and the Allocation of 401(k) Accounts to Company Stock
  • Contributor: Benartzi, Shlomo
  • imprint: Wiley, 2001
  • Published in: The Journal of Finance
  • Language: English
  • DOI: 10.1111/0022-1082.00388
  • ISSN: 0022-1082; 1540-6261
  • Origination:
  • Footnote:
  • Description: <jats:title>ABSTRACT</jats:title><jats:p>About a third of the assets in large retirement savings plans are invested in company stock, and about a quarter of the <jats:italic>discretionary</jats:italic> 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 <jats:italic>discretionary</jats:italic> contributions to company stock, whereas employees whose firms experienced the best stock performance allocate 39.70 percent. Allocations to company stock, however, do not predict future performance.</jats:p>