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Why do Wealthy Investors have a Higher Return on their Stocks?

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  • Yosef Bonaparte

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    (economics University of Texas @ Austin)

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    Abstract

    In contrast to the standard economics theory, an analysis of the Survey of Consumer Finance shows that wealthy investors have a higher return on their stocks than their poorer counterparts. The paper presents a general financial and economic theory of risk and search behavior to address the question if why wealthy investors have a higher return on their stocks. Two additional facts emerge: (i) wealthy investors employ more productive search efforts, and (ii) financial risk bearing and search efforts are complementary. This study develops an explanation for the wealth inequality and the equity premium puzzle as well as the policy implications of the privatization of social security

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    Bibliographic Info

    Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 286.

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    Date of creation: 03 Dec 2006
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    Handle: RePEc:red:sed006:286

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    Keywords: Investment decisions; financial behavior; search and risk behavior;

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    1. Annette Vissing-Jorgensen, 2002. "Towards an Explanation of Household Portfolio Choice Heterogeneity: Nonfinancial Income and Participation Cost Structures," NBER Working Papers 8884, National Bureau of Economic Research, Inc.
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