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Inequality, stock market participation, and the equity premium

Favilukis, Jack (2013) Inequality, stock market participation, and the equity premium. Journal of Financial Economics, 107 (3). pp. 740-759. ISSN 0304-405X

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Identification Number: 10.1016/j.jfineco.2012.10.008

Abstract

The last 30 years saw substantial increases in wealth inequality and stock market participation, smaller increases in consumption inequality and the fraction of indebted households, a decline in interest rates and the expected equity premium, as well as a prolonged stock market boom. In an incomplete markets, overlapping generations model I jointly explain these trends by the observed rise in wage inequality, decrease in participation costs, and loosening of borrowing constraints. After accounting for these changes, I show that the stock market played a major role in increasing wealth inequality. Crucially, these phenomena must be considered jointly; studying one independently leads to counterfactual predictions about others.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-financ...
Additional Information: © 2013 Elsevier B.V.
Subjects: H Social Sciences > HG Finance
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 28 Nov 2012 11:59
Last Modified: 30 May 2014 15:08
URI: http://eprints.lse.ac.uk/id/eprint/37423

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