Abstract
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) assets on fund managers' investment behavior. We find that 401(k) fund and stock ownership are the most important variables, after size, explaining fund demand for stocks, with a one standard deviation increase in 401(k) ownership leading to 15-30% increase in stock demand. Funds managing a larger fraction of 401(k) assets tilt their portfolios toward winners, high beta and long duration stocks, outperforming their benchmarks. This investment behavior has important implications for security pricing and generate a feedback effect if pension flows respond positively to relative fund returns. Lastly, we estimate the equilibrium price impact of a change in 401(k) ownership to be positive and increasing over time, consistent with the shift from active to passive investing