Wealth Redistribution in Bubbles and Crashes

61 Pages Posted: 19 Jun 2019 Last revised: 29 Oct 2020

See all articles by Li An

Li An

Tsinghua University - PBC School of Finance

Dong Lou

London School of Economics & Political Science (LSE); Centre for Economic Policy Research (CEPR)

Donghui Shi

Shanghai Stock Exchange

Date Written: November 1, 2018

Abstract

What are the social-economic consequences of financial market bubbles and crashes? Using novel comprehensive administrative data from China, we document a substantial increase in inequality of wealth held in risky assets by Chinese households in the 2014-15 bubble-crash episode: the largest 0.5% households in the equity market gain, while the bottom 85% lose, 250B RMB through active trading in this period, or 30% of either group’s initial equity wealth. In comparison, the return differential between the top and bottom household groups in 2012-14, a period of a relatively calm market, is an order of magnitude smaller. We examine a number of possible explanations for these findings and discuss their broader implications.

Keywords: bubbles and crashes, wealth inequality, market participation, social impact

JEL Classification: D14, D31, D91, G11, G51, O16

Suggested Citation

An, Li and Lou, Dong and Shi, Donghui, Wealth Redistribution in Bubbles and Crashes (November 1, 2018). PBCSF-NIFR Research Paper, Available at SSRN: https://ssrn.com/abstract=3402254 or http://dx.doi.org/10.2139/ssrn.3402254

Li An (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Dong Lou

London School of Economics & Political Science (LSE) ( email )

Department of Finance
Houghton Street
London, WC2A 2AE
United Kingdom
+44 (0)207 1075360 (Phone)

HOME PAGE: http://personal.lse.ac.uk/loud/

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Donghui Shi

Shanghai Stock Exchange ( email )

Shanghai 200120
China

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