Investment Losses and Inequality

49 Pages Posted: 10 Sep 2019

See all articles by Maximilian Longmuir

Maximilian Longmuir

Humboldt University of Berlin

Johannes Koenig

German Institute for Economic Research (DIW Berlin)

Date Written: August 29, 2019


Systematic differences along the wealth distribution in investment performance will potentially have large consequences for the level and persistence of wealth inequality. These differences in performance are hard to measure except in a few, select countries with detailed information on household portfolios. In this paper we use a modified version of the Global Capital Asset Pricing Model (GCAPM), which relies on classed household portfolio data to measure investment performance in five European countries, where previously no measure of investment performance could be computed. We verify the accuracy of the modified GCAPM using Dutch survey data, which contains unclassed portfolio data enabling direct comparison with the regular GCAPM. In all countries households with less wealth exhibit lower investment performance, even after risk-adjustment. Further, we show that raising investment performance creates large efficiency gains, however, households below the median do not benefit from them.

Keywords: Capital Asset Pricing, Household Portfolios, Inequality, Investment Behavior

JEL Classification: D12, D14, D31, G11

Suggested Citation

Longmuir, Maximilian and Koenig, Johannes, Investment Losses and Inequality (August 29, 2019). Available at SSRN: or

Maximilian Longmuir

Humboldt University of Berlin ( email )

Unter den Linden 6
Berlin, AK Berlin 10099

Johannes Koenig (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117

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