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Wealth Inequality and Asset Pricing

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Author Info
Gollier, C.

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Abstract

We consider an economy with a complete set of competitive markets for contingent claims. We examine how wealth inequality affects the equilibrium value of the equity premium and the risk-free rate. We forst show that welath inequality raises the equity premium if and only if the inverse of absolute risk aversion is concave in welath. We also show that the equilibrium risk-free rate is reduced by wealth inequality if the inverse of the coefficient of absolute prudence is concave.

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Publisher Info
Paper provided by Toulouse - GREMAQ in its series Papers with number 97.486.

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Length: 19 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:fth:gremaq:97.486

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Related research
Keywords: RISK ; WEALTH ; PRICING ; EQUITY;

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Find related papers by JEL classification:
G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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  1. Juan Carols Hatchondo, 2005. "A quantitative study of the role of wealth inequality on asset prices," Working Paper 05-12, Federal Reserve Bank of Richmond. [Downloadable!]
  2. Hara, C. & Christoph Kuzmics, 2004. "Representative Consumer's Risk Aversion and Efficient Risk-Sharing Rules," Cambridge Working Papers in Economics 0452, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  3. repec:bep:thecon:v:4:y:2004:i:1:p:1070-1070 is not listed on IDEAS
  4. Hennessy, David A. & Lapan, Harvey E., 2006. "On the Nature of Certainty Equivalent Functionals," Staff General Research Papers 12552, Iowa State University, Department of Economics.
    Other versions:
  5. Jan Carlos Hatchondo, 2008. "A quantitative study of the role of wealth inequality on asset prices," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 73-96. [Downloadable!]
  6. Gollier, Christian, 2003. "Optimal Dynamic Portfolio Risk with First-Order and Second-Order Predictability," IDEI Working Papers 250, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  7. Walentin, Karl, 2007. "Earnings Inequality and the Equity Premium," Working Paper Series 215, Sveriges Riksbank (Central Bank of Sweden). [Downloadable!]
  8. Christian Ghiglino & Marielle Olszak-Duquenne, 2004. "On the Impact of Heterogeneity on Indeterminacy," Cahiers du Département d'Econométrie 2004.09, Département d'Econométrie, Université de Genève. [Downloadable!]
    Other versions:
  9. Sheryl Ball & Catherine C. Eckel & Maria Heracleous, 2008. "Risk Aversion and Physical Prowess: Prediction, Choice and Bias," Working Papers e07-11, Virginia Polytechnic Institute and State University, Department of Economics. [Downloadable!]
  10. Christian Helmenstein & Alexia Prskawetz & Yuri Yegorov, 2002. "Wealth and cohort size: stock market boom or bust ahead?," MPIDR Working Papers WP-2002-051, Max Planck Institute for Demographic Research, Rostock, Germany. [Downloadable!]
  11. Maurizio Mazzocco, 2004. "Saving, Risk Sharing, and Preferences for Risk," American Economic Review, American Economic Association, vol. 94(4), pages 1169-1182, September. [Downloadable!]
  12. Chiaki Hara, 2005. "Heterogeneous Risk Attitudes in a Continuous-Time Model," KIER Working Papers 609, Kyoto University, Institute of Economic Research. [Downloadable!]
  13. Luigi Guiso & Monica Paiella, 2007. "Risk Aversion, Wealth, and Background Risk," Economics Working Papers ECO2007/47, European University Institute. [Downloadable!]
    Other versions:
  14. Christian Ghiglino & Alain Venditti, 2008. "The role of the wealth distribution on output volatility," Economics Discussion Papers 653, University of Essex, Department of Economics. [Downloadable!]
    Other versions:
  15. Christian Ghiglino, 2003. "Wealth inequality and dynamic stability," Diskussionsschriften dp0310, Universitaet Bern, Departement Volkswirtschaft. [Downloadable!]
    Other versions:
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