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dc.contributor.authorBasu, Anup K.
dc.contributor.authorDrew, Michael E.
dc.contributor.editorAkimov, Alexandr
dc.date.accessioned2020-01-16T08:07:01Z
dc.date.available2020-01-16T08:07:01Z
dc.date.issued2009
dc.identifier.otherRePEc:gri:fpaper:finance:200903
dc.identifier.urihttp://hdl.handle.net/10072/390348
dc.description.abstractFor participants in defined contribution (DC) plans who refrain from exercising investment choice, plan contributions are invested following the default investment option of their respective plans. Since default investment options of different plans vary widely in terms of their benchmark asset allocation, the most important determinant of investment performance, participants enrolled in these options face significantly different wealth outcomes at retirement. This paper simulates the terminal wealth outcomes under different static asset allocation strategies to evaluate their relative appeal as default investment choice in DC plans. We find that strategies with moderate allocation to stocks are consistently outperformed in terms of upside potential of exceeding the participant's wealth accumulation target at retirement as well as downside risk of falling below that target outcome by very aggressive strategies whose allocation to stocks approach 100%. The risk of extremely adverse wealth outcomes for plan participants also does not appear to be very sensitive to asset allocation. Our evidence strongly suggests the appropriateness of strategies heavily tilted towards stocks to be nominated as default investment options in DC plans unless plan providers emphasize predictability of wealth outcomes over adequacy of retirement wealth.
dc.format.extent36 pages
dc.languageEnglish
dc.publisherGriffith University
dc.publisher.placeBrisbane, Australia
dc.relation.ispartofpagefrom1
dc.relation.ispartofpageto36
dc.subject.keywordsG11 - Portfolio Choice; Investment Decisions
dc.subject.keywordsDefined contribution plan
dc.subject.keywordsDefault option
dc.subject.keywordsAsset allocation
dc.subject.keywordsDownside risk
dc.subject.keywordsLower partial moment
dc.subject.keywordsValue at risk
dc.subject.keywordsExpected tail loss
dc.title2009-03: The Appropriateness of Default Investment Options in Defined Contribution Plans: Australian Evidence (Working paper)
dc.typeReport
dc.type.descriptionDiscussion Paper
gro.facultyGriffith Business School
gro.description.notepublicFinance
gro.rights.copyrightCopyright © 2010 by author(s). No part of this paper may be reproduced in any form, or stored in a retrieval system, without prior permission of the author(s).
gro.date.issued2009
gro.hasfulltextFull Text
gro.griffith.authorDrew, Michael E.


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