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Rich Pickings? Risk, Return, and Skill in the Portfolios of the Wealthy

Author

Listed:
  • Laurent Bach

    (SSE - Stockholm School of Economics)

  • Laurent E. Calvet

    (GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique)

  • Paolo Sodini

    (Department of Finance - SSE - Stockholm School of Economics)

Abstract

We investigate wealth returns on an administrative panel containing the disaggregated balance sheets of Swedish residents. The expected return on household net wealth increases with net worth, exceeding the risk-free rate by 9% for households in the top 0.01%. The expected wealth return is driven by systematic risk-taking and exhibits strong persistence. Idiosyncratic risk is transitory but sufficiently large among business owners to generate substantial long-term dispersion in returns in top brackets. We estimate the distribution of the geometric average return on gross wealth over a generation. Heterogeneity in returns explains most of the historical increase in top wealth shares.

Suggested Citation

  • Laurent Bach & Laurent E. Calvet & Paolo Sodini, 2015. "Rich Pickings? Risk, Return, and Skill in the Portfolios of the Wealthy," Working Papers hal-02002692, HAL.
    • Handle: RePEc:hal:wpaper:hal-02002692
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    Keywords

    Household finance; inequality; risk-taking; factor-based investing; leverage; real estate; private equity; cost of debt.;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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