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Why do Wealthy Investors have a Higher Return on their Stocks?

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  • Yosef Bonaparte

    (economics University of Texas @ Austin)

Abstract

In contrast to the standard economics theory, an analysis of the Survey of Consumer Finance shows that wealthy investors have a higher return on their stocks than their poorer counterparts. The paper presents a general financial and economic theory of risk and search behavior to address the question if why wealthy investors have a higher return on their stocks. Two additional facts emerge: (i) wealthy investors employ more productive search efforts, and (ii) financial risk bearing and search efforts are complementary. This study develops an explanation for the wealth inequality and the equity premium puzzle as well as the policy implications of the privatization of social security

Suggested Citation

  • Yosef Bonaparte, 2006. "Why do Wealthy Investors have a Higher Return on their Stocks?," 2006 Meeting Papers 286, Society for Economic Dynamics.
    • Handle: RePEc:red:sed006:286
    as

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    References listed on IDEAS

    as
    1. Annette Vissing-Jorgensen, 2000. "Towards an Explanation of Household Portfolio Choice Heterogeneity: Nonfinancial Income and Participation Cost Structures," Econometric Society World Congress 2000 Contributed Papers 1102, Econometric Society.
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    More about this item

    Keywords

    Investment decisions; financial behavior; search and risk behavior;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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