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Inequality, stock market participation, and the equity premium

  • Favilukis, Jack
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    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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    File URL: http://www.sciencedirect.com/science/article/pii/S0304405X12002206
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    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
    DOI: 10.1016/j.jfineco.2012.10.008
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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