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A quantitative study of the role of wealth inequality on asset prices

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  • Juan Carlos Hatchondo

Abstract

This article studies the equilibrium properties of asset prices in a Lucas tree model when agents display a concave coefficient of absolute risk tolerance. This preference specification introduces a role for wealth inequality even under the presence of complete markets. The article finds evidence suggesting that the role of wealth inequality on asset prices may be non-negligible. The equity premium in the unequal economy is between 24 and 47 basis points larger than the equity premium displayed in an egalitarian economy.

Suggested Citation

  • Juan Carlos Hatchondo, 2008. "A quantitative study of the role of wealth inequality on asset prices," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 94(Win), pages 73-96.
    • Handle: RePEc:fip:fedreq:y:2008:i:win:p:73-96:n:v.94no.1
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    Cited by:

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    2. Walentin Karl, 2010. "Earnings Inequality and the Equity Premium," The B.E. Journal of Macroeconomics, De Gruyter, vol. 10(1), pages 1-23, November.
    3. Söhnke M. Bartram & Harald Lohre & Peter F. Pope & Ananthalakshmi Ranganathan, 2021. "Navigating the factor zoo around the world: an institutional investor perspective," Journal of Business Economics, Springer, vol. 91(5), pages 655-703, July.

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