Investor Sophistication and Capital Income Inequality

76 Pages Posted: 1 Mar 2014 Last revised: 10 Dec 2015

See all articles by Marcin T. Kacperczyk

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; Centre for Economic Policy Research (CEPR)

Jaromir B. Nosal

Columbia Business School - Economics Department

Luminita Stevens

University of Maryland

Multiple version iconThere are 4 versions of this paper

Date Written: December 9, 2015

Abstract

We show that capital income inequality is large and growing fast, accounting for a significant portion of total income inequality. We study its determinants in a general equilibrium portfolio choice model with endogenous information acquisition and heterogeneity across household sophistication and asset riskiness. The main mechanism works through endogenous household participation in assets with different risk. The model implies capital income inequality that increases with aggregate information technology. Quantitatively, it generates a path of capital income inequality that matches the evolution of inequality in the U.S.

Keywords: capital income inequality, investor sophistication, information frictions

JEL Classification: G12, E44, G11, G14

Suggested Citation

Kacperczyk, Marcin T. and Nosal, Jaromir B. and Stevens, Luminita, Investor Sophistication and Capital Income Inequality (December 9, 2015). Available at SSRN: https://ssrn.com/abstract=2402462 or http://dx.doi.org/10.2139/ssrn.2402462

Marcin T. Kacperczyk (Contact Author)

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jaromir B. Nosal

Columbia Business School - Economics Department ( email )

1022 IAB Economics
420 W 118th Street
New York, NY 10027
United States
2128414005 (Phone)

Luminita Stevens

University of Maryland ( email )

Department of Economics
4121C Tydings Hall
College Park, MD 20742
United States

HOME PAGE: http://econweb.umd.edu/~stevens/

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