The effect of market returns and volatility on investment choices in Chile’s defined contribution retirement plan

•Trading increased in response to negative earnings.•Investors tended to shift to less risky funds in response to negative earnings.•Investors responded differently to volatility during the Global Financial Crisis.•Active investors tended to have lower returns than passive investors. This study examines the trading behavior of active investors in Chile’s defined contribution retirement program in response to changes in market returns and volatility from 2007 to 2013, a period that included the Global Financial Crisis. Monthly trading among active investors increased when returns were negative but decreased with greater volatility, though less so during the crisis. The active affiliates tended to move to less risky funds when returns were negative and vice versa. However, higher volatility tended to increase risk taking but again less so during the crisis. Later, recommendations of an investment advisory service had significant effects on the investment behavior of some affiliates. Given the generally poor returns to active investors, the study ends with suggestions for improving Chile’s retirement program.