Rich Pickings? Risk, Return, and Skill in the Portfolios of the Wealthy

Laurent Calvet and Laurent Bach

No 11734, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper investigates the risk and return characteristics of household wealth. The analysis is based on a high-quality administrative panel that reports the financial assets, real estate, private equity, and debt of Swedish residents. We show that the mean return on gross wealth strongly increases with net worth, primarily because wealthy households bear high systematic risk. By contrast, the mean return on net wealth is U-shaped in net worth because the middle class hold levered positions in real estate. Moreover, wealthy households bear high idiosyncratic risk but do not seem to earn abnormally high returns. Finally, we show that returns on wealth largely explain the inequality dynamics at the top.

Keywords: Household finance; Inequality; Risk-taking; Factor-based investing; Leverage; Cost of debt; Real estate; Private equity (search for similar items in EconPapers)
JEL-codes: D12 D31 G11 (search for similar items in EconPapers)
Date: 2016-12
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Citations: View citations in EconPapers (22)

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Related works:
Working Paper: Rich Pickings? Risk, Return, and Skill in the Portfolios of the Wealthy (2015)
Working Paper: Rich Pickings? Risk, Return, and Skill in the Portfolios of the Wealthy (2015)
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