How Much and How Fast Do Investors Respond to Equity Premium Changes? Evidence from Wealth Taxation

Andreas Fagereng, Luigi Guiso and Marius A. K. Ring

No 35262, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Using administrative panel data on Norwegian investors’ portfolios, we document strong but slow portfolio allocation responses to a persistent wealth-tax-induced shock to the equity premium. Short-run responses resemble the modest sensitivity documented using surveys. The longer-run responses are much larger and can be rationalized by moderate risk aversion. We document that equity premium shocks affect stock market entry but not exits, suggesting that entry costs dominate participation costs. Our finding of slow responses supports the asset-pricing literature that uses adjustment frictions to explain important asset-pricing puzzles, and has implications for optimal capital taxation when tax rates differ across assets.

JEL-codes: G11 G5 G51 H20 H31 (search for similar items in EconPapers)
Date: 2026-05
Note: AP PE
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Working Paper: How much and how fast do investors respond to equity premium changes? Evidence from wealth taxation (2023)
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