Rich Pickings? Risk, Return, and Skill in the Portfolios of the Wealthy

63 Pages Posted: 3 Jan 2017

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 2016

Abstract

This paper investigates the risk and return characteristics of household wealth. The analysis is based on a high-quality administrative panel that reports the financial assets, real estate, private equity, and debt of Swedish residents. We show that the mean return on gross wealth strongly increases with net worth, primarily because wealthy households bear high systematic risk. By contrast, the mean return on net wealth is U-shaped in net worth because the middle class hold levered positions in real estate. Moreover, wealthy households bear high idiosyncratic risk but do not seem to earn abnormally high returns. Finally, we show that returns on wealth largely explain the inequality dynamics at the top.

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

JEL Classification: D12, D31, G11

Suggested Citation

Bach, Laurent and Calvet, Laurent E. and Sodini, Paolo, Rich Pickings? Risk, Return, and Skill in the Portfolios of the Wealthy (December 2016). CEPR Discussion Paper No. DP11734, Available at SSRN: https://ssrn.com/abstract=2893086

Laurent Bach (Contact Author)

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

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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