The Annuity Duration Puzzle

We test whether life-contingent annuity prices promptly and fully adjust to changes in interest rates; a standard assumption made implicitly or explicitly in a growing annuity literature. Using a unique database consisting of over 3 million U.S. annuity quotes, we find that prices do not move as one might expect. Rather, prices adjust gradually and over a period of several weeks and often months, in response to certain -- and not necessarily …