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Wealth redistribution in bubbles and crashes

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  • An, Li
  • Lou, Dong
  • Shi, Donghui

Abstract

What are the social-economic consequences of financial market bubbles and crashes? Using novel comprehensive administrative data from China, we document a substantial increase in inequality of wealth held in equity by Chinese households in the 2014–15 bubble-crash episode: the largest 0.5% households in the equity market gain, while the bottom 85% lose, 250B RMB through active trading in this period, or 30% of either group's initial equity wealth. In comparison, the return differential between the top and bottom household groups in 2012–14, a period of a relatively calm market, is on the order of 1 to 3%. We examine several possible explanations for these findings and discuss their broader implications.

Suggested Citation

  • An, Li & Lou, Dong & Shi, Donghui, 2022. "Wealth redistribution in bubbles and crashes," LSE Research Online Documents on Economics 113766, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:113766
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    File URL: http://eprints.lse.ac.uk/113766/
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    References listed on IDEAS

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    Cited by:

    1. Jiang, Zhengyang & Peng, Cameron & Yan, Hongjun, 2024. "Personality differences and investment decision-making," LSE Research Online Documents on Economics 121634, London School of Economics and Political Science, LSE Library.
    2. Xingguo Luo & Doojin Ryu & Libin Tao & Chuxin Ye, 2024. "Price monotonicity violations during stock market crashes: Evidence from the SSE 50 ETF options market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 44(3), pages 533-554, March.

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    More about this item

    Keywords

    bubbles and crashes; investment skills; market participation; wealth inequality; 71903106; 71790591; 71790605;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • 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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