The Costs of Owning Employer Stocks: Lessons from Taiwan

Yi Tsung Lee; Yu-Jane Liu; Ning Zhu
September 2008
Journal of Financial & Quantitative Analysis;Sep2008, Vol. 43 Issue 3, p717
Academic Journal
Using data on all employees at listed companies in Taiwan, we find that the bias toward employer stocks is generic to individual investor decision making, but not limited to retirement plans. Seventy-one percent of the sample employees invest in employer stocks and employer stocks make up on average 47% of employee equity portfolios. The underdiversification resulting from the bias toward employer stocks is very costly. Holding current portfolio risk constant, employees forego 4.89% per annum in raw returns by investing in employer stocks, which represents 39.74% of their average 1998 salary income. Our findings have important implications for social security reform and retirement account management.


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