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Do the Rich Get Richer in the Stock Market? Evidence from India

Author

Listed:
  • John Y. Campbell
  • Tarun Ramadorai
  • Benjamin Ranish

Abstract

We use data on Indian stock portfolios to show that return heterogeneity is the primary contributor to increasing inequality of wealth held in risky assets by Indian individual investors. Return heterogeneity increases equity wealth inequality through two main channels, both of which are related to the prevalence of undiversified accounts that own relatively few stocks. First, some undiversified portfolios randomly do well, while others randomly do poorly. Second, larger accounts diversify more effectively and thereby earn higher average log returns even though their average simple returns are no higher than those of smaller accounts.

Suggested Citation

  • John Y. Campbell & Tarun Ramadorai & Benjamin Ranish, 2019. "Do the Rich Get Richer in the Stock Market? Evidence from India," American Economic Review: Insights, American Economic Association, vol. 1(2), pages 225-240, September.
    • Handle: RePEc:aea:aerins:v:1:y:2019:i:2:p:225-40
    Note: DOI: 10.1257/aeri.20180158
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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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    1. Do the Rich Get Richer in the Stock Market? Evidence from India (AER: Insights 2019) in ReplicationWiki

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