Investor Sophistication and Capital Income Inequality

62 Pages Posted: 23 Jun 2014 Last revised: 27 Oct 2024

See all articles by Marcin T. Kacperczyk

Marcin T. Kacperczyk

Imperial College London - Accounting, Finance, and Macroeconomics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Jaromir Nosal

Boston College

Luminita Stevens

University of Maryland

Multiple version iconThere are 4 versions of this paper

Date Written: June 2014

Abstract

What contributes to the growing income inequality across U.S. households? We develop an information- based general equilibrium model that links capital income derived from financial assets to a level of investor sophistication. Our model implies income inequality between sophisticated and unsophisticated investors that is growing in investors' aggregate and relative sophistication in the market. We show that our model is quantitatively consistent with the data from the U.S. market. In addition, we provide supporting evidence for our mechanism using a unique set of cross-sectional and time-series predictions on asset ownership and stock turnover.

Suggested Citation

Kacperczyk, Marcin T. and Nosal, Jaromir and Stevens, Luminita, Investor Sophistication and Capital Income Inequality (June 2014). NBER Working Paper No. w20246, Available at SSRN: https://ssrn.com/abstract=2457721

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

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Jaromir Nosal

Boston College

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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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