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

Yosef Bonaparte ()
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Yosef Bonaparte: economics University of Texas @ Austin

No 286, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: 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

Keywords: Investment decisions; financial behavior; search and risk behavior (search for similar items in EconPapers)
JEL-codes: D01 D11 G10 (search for similar items in EconPapers)
Date: 2006
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