Jose Vicente Martinez

Investor Inattention: A Hidden Cost of Choice in Pension Plans?

We investigate inattention on the part of pension plan participants using a dataset covering savings in Swedens Premium Pension System. These data permit direct comparison of the investment behaviours of pension and retail mutual fund investors. Unlike retail mutual fund investors, pension investors do not seem to react to past fund performance. This behaviour means that pension investors face a greater risk of being caught in poorly performing funds. Our evidence suggests that inertia and inattention to past performance may translate into poorer investment results for pension investors. We discuss a potential change in the design of defined contribution pension schemes that may mitigate costs for inattentive investors while maintaining flexibility for attentive investors.

Investment Consultants’ Claims About Their Own Performance: What Lies Beneath?

Investment consultants market their services by claiming that their fund manager recommendations add significant value. Using detailed data from the leading investment consultants we find no such evidence. A forensic analysis of consultants’ disclosures reveals a number of practices that explain their claims: comparisons to benchmarks rather than to peers, inclusion of simulated and backfilled returns, use of rating survivorship conditions, and unexplained exclusions of products from the analysis. We find that recommended products have similar return and risk characteristics to products that are not recommended, but deviate less from their benchmarks.