Financial Technology and the Inequality Gap

38 Pages Posted: 4 Nov 2019 Last revised: 3 Jun 2022

See all articles by Roxana Mihet

Roxana Mihet

Swiss Finance Institute - HEC Lausanne

Date Written: April 1, 2018


In this paper, I build a theoretical model of trading under asymmetric information to study the impact of financial information technologies on capital income inequality. In the model, investors are heterogeneous in their financial sophistication and have a choice between not participating in the stock-market, investing through a passive fund, or searching for an active fund. To assess the impact of financial innovation, I reduce the cost of stock market participation and of data processing, for funds and investors, over time. I find that lower participation costs always reduce capital income inequality, but lower costs of data processing, for investors or funds, do not guarantee broad increases in household wealth. Instead, the sophisticated investors who already have relatively high levels of wealth are most likely to benefit from many of the new information technologies. The main intuition is that lower data acquisition costs, for investors or for funds, make wealthier investors acquire more valuable information. This, in turn, makes less wealthy investors more reluctant to trade in a market with a higher degree of asymmetric information. By staying out of the market, the wealth of poor investors grows less than that of rich ones.

Keywords: FinTech, Inequality, Asymmetric information, active Investing, passive investing

JEL Classification: E21, G11, G14, L1, L15

Suggested Citation

Mihet, Roxana, Financial Technology and the Inequality Gap (April 1, 2018). Swiss Finance Institute Research Paper No. 21-04, Available at SSRN: or

Roxana Mihet (Contact Author)

Swiss Finance Institute - HEC Lausanne ( email )


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics