Publications
Publications
- 2023
- HBS Working Paper Series
What Drives Variation in Investor Portfolios? Estimating the Roles of Beliefs and Risk Preferences
By: Mark Egan, Alexander MacKay and Hanbin Yang
Abstract
We present an empirical model of portfolio choice that allows for nonparametric estimation
of investors’ (subjective) expectations and risk preferences. Using a comprehensive
dataset of 401(k) plans from 2009 through 2019, we explore the heterogeneity in asset allocations
across plans using our empirical framework. Our estimates indicate that differences
in expectations play a first-order role in explaining portfolios. We also show that investors
appear to form expectations based on local sources of information such as county-level GDP
growth and employer past performance. Overall, our findings are consistent with a model
in which heterogeneity in investor expectations reflects idiosyncratic experiences and local
environments.
Keywords
Stock Market Expectations; Demand Estimation; Retirement Planning; Defined Contribution Retirement Plan; 401 (K); Finance; Investment Portfolio; Investment; Retirement; Behavioral Finance; Financial Services Industry; United States
Citation
Egan, Mark, Alexander MacKay, and Hanbin Yang. "What Drives Variation in Investor Portfolios? Estimating the Roles of Beliefs and Risk Preferences." Harvard Business School Working Paper, No. 22-044, December 2021. (Revised April 2023. Direct download. NBER Working Paper Series, No. 29604, December 2021)