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Wealth Inequality and Asset Prices

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  • Matthieu Gomez

Abstract

Wealthy households disproportionately invest in equity, causing equity returns to generate large and persistent fluctuations in top wealth inequality. Motivated by this observation, I study the joint dynamics of asset prices and wealth inequality in a model where a subset of agents (entrepreneurs) hold levered positions on the economy. In the model, as in the data, the wealth distribution is stochastic and it exhibits a Pareto tail, with a tail index that depends on the logarithmic average return of top households. The model features a feedback loop between asset prices and wealth inequality, which amplifies the effect of aggregate shocks on the economy. The model, calibrated to the U.S. data, can account for a substantial portion of the fluctuations in asset prices and top wealth shares over the 20th century.

Suggested Citation

  • Matthieu Gomez, 2025. "Wealth Inequality and Asset Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 92(6), pages 3924-3967.
    • Handle: RePEc:oup:restud:v:92:y:2025:i:6:p:3924-3967.
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    File URL: http://hdl.handle.net/10.1093/restud/rdaf008
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    Cited by:

    1. Gleb Kozliakov & Emile A. Marin & Sanjay R. Singh, 2026. "Can Models with Idiosyncratic Risk Solve the Equity Premium Puzzle? Redux," Working Paper Series 2026-06, Federal Reserve Bank of San Francisco.
    2. Jung Sakong, 2026. "Who Buys High and Sells Low: Trading against Expected Returns and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 61, July.

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