Rich Pickings? Risk, Return, and Skill in Household Wealth

65 Pages Posted: 21 Dec 2015 Last revised: 20 Jan 2019

See all articles by Laurent Bach

Laurent Bach

ESSEC Business School - Finance Department; Swedish House of Finance

Laurent E. Calvet

EDHEC Business School - Department of Economics & Finance; CEPR

Paolo Sodini

Stockholm School of Economics - Department of Finance; Swedish House of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: December 26, 2018

Abstract

We investigate wealth returns on an administrative panel containing the disaggregated balance sheets of Swedish residents. The expected return on household net wealth increases with net worth, exceeding the risk-free rate by 9% for households in the top 0.01%. The expected wealth return is driven by systematic risk-taking and exhibits strong persistence. Idiosyncratic risk is transitory but sufficiently large among business owners to generate substantial long-term dispersion in returns in top brackets. We estimate the distribution of the geometric average return on gross wealth over a generation. Heterogeneity in returns explains most of the historical increase in top wealth shares.

Keywords: Household finance, inequality, risk-taking, factor-based investing, leverage, real estate, private equity, cost of debt.

JEL Classification: D12, D31, G11

Suggested Citation

Bach, Laurent and Calvet, Laurent E. and Sodini, Paolo, Rich Pickings? Risk, Return, and Skill in Household Wealth (December 26, 2018). HEC Paris Research Paper No. FIN-2016-1126; Swedish House of Finance Research Paper No. 16-03. Available at SSRN: https://ssrn.com/abstract=2706207 or http://dx.doi.org/10.2139/ssrn.2706207

Laurent Bach

ESSEC Business School - Finance Department ( email )

Avenue Bernard Hirsch
BP 105 Cergy Cedex, 95021
France

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

Laurent E. Calvet (Contact Author)

EDHEC Business School - Department of Economics & Finance ( email )

France

CEPR ( email )

33 Great Sutton Street
London, EC1V 0DX
United Kingdom

Paolo Sodini

Stockholm School of Economics - Department of Finance ( email )

Sveavagen 65, Box 6501
SE-113 83 Stockholm
Sweden
46 8 7369165 (Phone)
46 8 312327 (Fax)

HOME PAGE: http://www.hhs.se/secfi/People/Faculty/Finpso/finp

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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