Asset Market Participation, Redistribution, and Asset Pricing

Francesco Saverio Gaudio (), Ivan Petrella and Emiliano Santoro ()
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Francesco Saverio Gaudio: Sapienza University of Rome
Emiliano Santoro: Catholic University of Milan

No 108, Working papers from Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino

Abstract: We study how redistribution between assetholders and non-assetholders links macroeconomic fluctuations to expected stock returns. Using U.S. household data, we show that aggregate and relative consumption growth forecast excess returns with opposite signs and at different horizons. We interpret these patterns through a production-based asset-pricing model with limited asset market participation and external habits. In the model, aggregate consumption captures variation in the price of risk, while relative consumption reflects changes in the quantity of risk borne by investors. Technology shocks drive most macroeconomic fluctuations, whereas redistributive shocks generate large short-run movements in inequality and represent the main source of risk priced in financial markets. This points to a macro-finance disconnect between the drivers of business cycles and those governing risk premia.

Keywords: Consumption; Heterogeneity; Limited participation; Asset pricing (search for similar items in EconPapers)
JEL-codes: E21 E25 E32 E44 G12 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2026-07
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https://www.bemservizi.unito.it/repec/tur/wpapnw/m108.pdf First version, 2026 (application/pdf)

Related works:
Working Paper: Asset Market Participation, Redistribution, and Asset Pricing (2023)
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