Abstract
Employee pension plans in most countries limit participants' choice to a pre-selected 'menu' of funds. How would funds react if participants were allowed to choose funds from outside of such a limited menu? This paper exploits a pension policy reform in Hong Kong to study funds' reaction using a difference-in-difference approach. The findings indicate that funds, catering to participants' preferences, started charging lower fees after the reform. In the meantime, they adopted a less active investment strategy and gross return deteriorated. The findings suggest that the freedom of choice affects participants' wealth indirectly through the endogenous response of funds.
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