Abstract
Target date funds (TDFs) are often considered “set-and-forget” vehicles that provide automatic rebalancing for households saving for retirement. However, I show that investors actively move money in and out of TDFs to chase recent performance, and managers seek higher returns to attract flows. By analyzing changes in the glide path—the planned asset allocation schedule—I find that managers systematically deviate from the original glide path to reach for yield, increasing equity weights and substituting safer bonds with riskier ones, especially when interest rates are low. This tendency is more pronounced when managers face greater pressure to attract inflows. A stylized lifecycle model implies that such glide path deviations may result in meaningful welfare losses, which rise with investor age and reach as much as 4.1 percent of lifetime consumption.
Intended Consequences of More Frequent Portfolio Disclosure
Abstract
This study investigates the impact of the 2004 regulation, which mandated mutual funds to increase their portfolio disclosure frequency from semi-annual to quarterly, on the manipulation activities of mutual funds and the capital allocation decisions made by investors. Using a difference-in-difference approach, we find no compelling evidence indicating a decrease in portfolio manipulation practices such as portfolio pumping, style drift, and window dressing subsequent to the regulatory change. However, we observe a notable improvement in investment efficiency, reflected in the increased return predictability of fund flows. This improvement is primarily attributed to institutional investors’ enhanced ability to avoid underperforming funds. Our findings suggest that while greater portfolio transparency enables sophisticated investors to make better-informed asset allocation choices, the portfolio disclosure at quarterly frequency is insufficient to curb opportunistic behavior by fund managers.