Do the Rich Get Richer in the Stock Market? Evidence from India
26 Pages Posted: 20 Mar 2018 Last revised: 16 Aug 2018
Date Written: July 31, 2018
We use data on Indian stock portfolios to show that return heterogeneity is the primary contributor to increasing inequality of wealth held in risky assets by Indian individual investors. Return heterogeneity increases equity wealth inequality through two main channels, both of which are related to the prevalence of undiversified accounts that own relatively few stocks. First, some undiversified portfolios randomly do well, while others randomly do poorly. Second, larger accounts diversify more effectively and thereby earn higher average log returns even though their average simple returns are no higher than those of smaller accounts.
Keywords: inequality, diversification, stock investment, India
JEL Classification: D14, D31, G11
Suggested Citation: Suggested Citation