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Wealth redistribution in bubbles and crashes

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  • An, Li
  • Lou, Dong
  • Shi, Donghui

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 equity 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 on the order of 1 to 3%. We examine several possible explanations for these findings and discuss their broader implications.

Suggested Citation

  • An, Li & Lou, Dong & Shi, Donghui, 2022. "Wealth redistribution in bubbles and crashes," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 134-153.
    • Handle: RePEc:eee:moneco:v:126:y:2022:i:c:p:134-153
    DOI: 10.1016/j.jmoneco.2022.01.001
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    4. Xie, Yuxin & Tang, Ruohua & Pantelous, Athanasios A. & Lu, Xiaomeng, 2024. "Narrow framing and under-diversification: Empirical evidence from Chinese households," China Economic Review, Elsevier, vol. 83(C).
    5. Jiang, Zhengyang & Peng, Cameron & Yan, Hongjun, 2024. "Personality differences and investment decision-making," LSE Research Online Documents on Economics 121634, London School of Economics and Political Science, LSE Library.
    6. Liu, Xin & Qiu, Zhigang & Shen, Luyao & Zheng, Weinan, 2023. "Coreversal: The booms and busts of arbitrage activities in China," Journal of Empirical Finance, Elsevier, vol. 71(C), pages 51-65.
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    8. Kang, Junqing, 2022. "Comments on “Government intervention through informed trading in financial markets” by Shao’an Huang, Zhigang Qiu, Gaowang Wang and Xiaodan Wang," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).

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    More about this item

    Keywords

    Bubbles and crashes; Investment skills; Wealth inequality; Market participation;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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