Stock Demand and Price Impact of 401(k) Plans

We estimate a demand system linking 401(k) plans ownership of individual stocks and funds to their demand for equities, and quantify the effect of 401(k) stock holdings on investor behavior. We introduce a new variable, stock-level 401(k) ownership, and find it to be a key determinant of investor demand, with a one standard deviation increase in 401(k) ownership leading to 11-19% increase in stock demand. We also estimate the equilibrium price impact of a change in stock-level 401(k) ownership to be positive and increasing over time, consistent with the shift from active to passive investing. Lastly, we document that funds managing a larger fraction of 401(k) assets tilt their portfolios toward winners, high beta and long duration stocks, and they hold less cash.