We study individuals' incentives to make investment decisions. Using data from a large pension system in Chile we find that individuals who are active in managing their investments have, on average, poor performance. We provide robust evidence suggesting that learning plays an important part in this phenomenon. Indeed, individuals who have made successful investment decisions in the past go on to trade more frequently. However, this result holds when using a naive definition for successful decisions. Also, average performance is negatively related to the number of investment decisions, casting doubt on the existence of market timing skills.

Using regulatory data free of self-reporting bias for 2007–16, we decompose investment returns of 455 Dutch pension funds according to their key investment decisions, i.e., asset allocation, market timing and security selection. In extension to existing papers, we also assess the impact of benchmark selection. Over time, asset allocation explains 39% of the variation of returns, whereas benchmark selection, timing and selection explain 11%, 9% and 16%, respectively. Across pension funds, asset allocation explains on average only 19% of the variation in pension fund returns. Benchmark selection dominates this by explaining 33% of cross-sectional returns. We relate the choice for a specific benchmark to investment, risk and style preferences.

We study the asset allocation decision of a life insurance company’s general account with respect to the possibility of large negative economic shocks and examine how this account is affected by policyholder investment decisions in the company’s separate account. This is accomplished using a performance metric that incorporates downside risk measured using univariate and multivariate extreme value distributions. Because of its well-known price volatility, diversification attributes, and significant weight in the combined general and separate accounts, our primary focus is the company’s equity investments. Although industry asset allocations have varied over the past two decades, we find that the actual allocations to equity in the general account are close to the allocation percentages suggested by our extreme value metrics and both are far below the maximum values indicated by the relevant regulatory bodies.