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Investor sophistication and capital income inequality

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  • Kacperczyk, Marcin
  • Nosal, Jaromir
  • Stevens, Luminita

Abstract

Capital income inequality is large and growing fast, accounting for a significant portion of total income inequality. We study its growth in a general equilibrium portfolio choice model with endogenous information acquisition and heterogeneity across household sophistication and asset riskiness. The model implies capital income inequality that grows with aggregate information technology. Investors differentially adjust both the size and the composition of their portfolios, as unsophisticated investors retrench from trading risky securities and shift their portfolios to safer assets. Technological progress also reduces aggregate returns and increases the volume of transactions, features that are consistent with recent U.S. data.

Suggested Citation

  • Kacperczyk, Marcin & Nosal, Jaromir & Stevens, Luminita, 2019. "Investor sophistication and capital income inequality," Journal of Monetary Economics, Elsevier, vol. 107(C), pages 18-31.
    • Handle: RePEc:eee:moneco:v:107:y:2019:i:c:p:18-31
    DOI: 10.1016/j.jmoneco.2018.11.002
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    More about this item

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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