"Pension Reform and Asset Allocation: Evidence from Annuity Cuts to Retired Civil Servants in Taiwan," with C. Y. Cyrus Chu and Po-Hsuan Hsu.

• How do households reallocate assets when faced with a sudden decrease in lifetime income? We examine retired civil servants’ asset allocation in response to a retroactive pension cut in Taiwan. Using administrative tax data, we show that these retirees increased their stock-to-wealth ratios by 10%, stock holdings by 7%, and risk exposures to market and other risks following the annuity cuts. Moreover, they exhibited a heightened disposition effect, reduced their bank deposits and total wealth, and were more likely to re-enter the labor market. Our large-scale evidence suggests that, consistent with prospect theory, retirees pursued riskier assets under annuity cuts.