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Investor Sophistication and Capital Income Inequality

  • Marcin Kacperczyk
  • Jaromir B. Nosal
  • Luminita Stevens

What contributes to the growing income inequality across U.S. households? We develop an information- based general equilibrium model that links capital income derived from financial assets to a level of investor sophistication. Our model implies income inequality between sophisticated and unsophisticated investors that is growing in investors' aggregate and relative sophistication in the market. We show that our model is quantitatively consistent with the data from the U.S. market. In addition, we provide supporting evidence for our mechanism using a unique set of cross-sectional and time-series predictions on asset ownership and stock turnover.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 20246.

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Date of creation: Jun 2014
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Handle: RePEc:nbr:nberwo:20246
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