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

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: 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