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Inequality, stock market participation, and the equity premium

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  • Favilukis, Jack
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    Abstract

    The last 30 years saw substantial increases in wealth inequality and stock market participation, smaller increases in consumption inequality and the fraction of indebted households, a decline in interest rates and the expected equity premium, as well as a prolonged stock market boom. In an incomplete markets, overlapping generations model I jointly explain these trends by the observed rise in wage inequality, decrease in participation costs, and loosening of borrowing constraints. After accounting for these changes, I show that the stock market played a major role in increasing wealth inequality. Crucially, these phenomena must be considered jointly; studying one independently leads to counterfactual predictions about others.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 107 (2013)
    Issue (Month): 3 ()
    Pages: 740-759

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    Handle: RePEc:eee:jfinec:v:107:y:2013:i:3:p:740-759

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    Web page: http://www.elsevier.com/locate/inca/505576

    Related research

    Keywords: Inequality; Asset returns; Stock market participation;

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    Cited by:
    1. Jack Favilukis & Sydney C. Ludvigson & Stijn Van Nieuwerburgh, 2014. "Foreign Ownership of U.S. Safe Assets: Good or Bad?," NBER Working Papers 19917, National Bureau of Economic Research, Inc.
    2. Denis Gorea, 2013. "Tax Avoidance, Welfare Transfers, and Asset Prices," 2013 Meeting Papers 1054, Society for Economic Dynamics.

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