Portfolio Inertia and Stock Market Fluctuations

This paper uses population-wide data from the Panel Study of Income Dynamics and the Survey of Consumer Finances to resolve the conflict between overtrading and inactivity shown in administrative data on brokerage and retirement accounts, respectively. Considerable inertia is found and linked to characteristics (e.g., limited education or resources), but less to index movements: the downswing has encouraged staying out, rather than getting out, of the market. The small minority with brokerage accounts exhibits important differences in trading patterns relative to the population and invests small fractions of wealth in brokerage accounts. Results strengthen the case for default options in retirement accounts and built-in trading provisions in mutual funds.