Investor Sophistication and Capital Income Inequality

62 Pages Posted: 23 Jun 2014

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: 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 B. 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

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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