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Why do Wealthy Investors have a Higher Return on their Stocks?


  • Yosef Bonaparte

    () (economics University of Texas @ Austin)


In contrast to the standard economics theory, an analysis of the Survey of Consumer Finance shows that wealthy investors have a higher return on their stocks than their poorer counterparts. The paper presents a general financial and economic theory of risk and search behavior to address the question if why wealthy investors have a higher return on their stocks. Two additional facts emerge: (i) wealthy investors employ more productive search efforts, and (ii) financial risk bearing and search efforts are complementary. This study develops an explanation for the wealth inequality and the equity premium puzzle as well as the policy implications of the privatization of social security

Suggested Citation

  • Yosef Bonaparte, 2006. "Why do Wealthy Investors have a Higher Return on their Stocks?," 2006 Meeting Papers 286, Society for Economic Dynamics.
  • Handle: RePEc:red:sed006:286

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    References listed on IDEAS

    1. Annette Vissing-Jorgensen, 2002. "Towards an Explanation of Household Portfolio Choice Heterogeneity: Nonfinancial Income and Participation Cost Structures," NBER Working Papers 8884, National Bureau of Economic Research, Inc.
    2. Blau, David M & Robins, Philip K, 1990. "Job Search Outcomes for the Employed and Unemployed," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 637-655, June.
    3. Attanasio, Orazio P & Browning, Martin, 1995. "Consumption over the Life Cycle and over the Business Cycle," American Economic Review, American Economic Association, vol. 85(5), pages 1118-1137, December.
    4. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, March.
    5. Fama, Eugene F, 1970. "Efficient Capital Markets: A Review of Theory and Empirical Work," Journal of Finance, American Finance Association, vol. 25(2), pages 383-417, May.
    6. Harry J. Holzer, 1987. "Job Search by Employed and Unemployed Youth," ILR Review, Cornell University, ILR School, vol. 40(4), pages 601-611, July.
    7. Mehra, Rajnish & Prescott, Edward C., 1985. "The equity premium: A puzzle," Journal of Monetary Economics, Elsevier, vol. 15(2), pages 145-161, March.
    8. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-1129, September.
    9. Lucas, Robert E, Jr, 1978. "Asset Prices in an Exchange Economy," Econometrica, Econometric Society, vol. 46(6), pages 1429-1445, November.
    10. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213-213.
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    More about this item


    Investment decisions; financial behavior; search and risk behavior;

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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