Investor Sophistication and Capital Income Inequality

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64 Pages Posted: 22 Aug 2015 Last revised: 14 Feb 2019

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: September 28, 2018

Abstract

Capital income inequality is large and growing fast, accounting for a significant portion of total income inequality. We study its growth in a general equilibrium portfolio choice model with endogenous information acquisition and heterogeneity across household sophistication and asset riskiness. The model implies capital income inequality that grows with aggregate information technology. Investors di↵erentially adjust both the size and composition of their portfolios, as unsophisticated investors retrench from trading risky securities and shift their portfolios toward safer assets. Technological progress also reduces aggregate returns and increases the volume of transactions, features that are consistent with recent U.S. data.

Keywords: inequality, technological progress, capital income

Suggested Citation

Kacperczyk, Marcin T. and Nosal, Jaromir B. and Stevens, Luminita, Investor Sophistication and Capital Income Inequality (September 28, 2018). Available at SSRN: https://ssrn.com/abstract=2648849 or http://dx.doi.org/10.2139/ssrn.2648849

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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