Inequality, stock market participation, and the equity premium

Jack Favilukis

Journal of Financial Economics, 2013, vol. 107, issue 3, 740-759

Abstract: The last 30 years saw substantial increases in wealth inequality and stock market participation, smaller increases in consumption inequality and the fraction of indebted households, a decline in interest rates and the expected equity premium, as well as a prolonged stock market boom. In an incomplete markets, overlapping generations model I jointly explain these trends by the observed rise in wage inequality, decrease in participation costs, and loosening of borrowing constraints. After accounting for these changes, I show that the stock market played a major role in increasing wealth inequality. Crucially, these phenomena must be considered jointly; studying one independently leads to counterfactual predictions about others.

Keywords: Inequality; Asset returns; Stock market participation (search for similar items in EconPapers)
JEL-codes: E21 E44 G12 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (57)

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Related works:
Working Paper: Inequality, stock market participation, and the equity premium (2007)
Working Paper: Inequality, Stock Market Participation, and the Equity Premium (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:107:y:2013:i:3:p:740-759

DOI: 10.1016/j.jfineco.2012.10.008

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