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Investor sophistication and capital income inequality

Marcin Kacperczyk, Jaromir Nosal and Luminita Stevens

No 199, NBP Working Papers from Narodowy Bank Polski, Economic Research Department

Abstract: We study the determinants of capital income inequality in a general equilibrium portfolio choice model with endogenous information acquisition. The key elements of the model are heterogeneity in investor sophistication and in asset riskiness. The model implies capital income inequality that increases with aggregate information technology, given initial heterogeneity in sophistication. The main mechanism in the model works through endogenous investor participation in assets with different risk. Across assets, the pattern of expansion of sophisticated investors and retrenchment of unsophisticated investors, unique to our model, is consistent with asset ownership dynamics for the U.S. Quantitatively, the model generates a path for capital income inequality that matches the evolution of inequality in U.S. data.

Date: 2015
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Related works:
Working Paper: Investor Sophistication and Capital Income Inequality (2018) Downloads
Working Paper: Investor Sophistication and Capital Income Inequality (2014) Downloads
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