Working Paper: NBER ID: w24898
Authors: John Y. Campbell; Tarun Ramadorai; Benjamin Ranish
Abstract: We use data on Indian stock portfolios to show that return heterogeneity is the primary contributor to increasing inequality of wealth held in risky assets by Indian individual investors. Return heterogeneity increases equity wealth inequality through two main channels, both of which are related to the prevalence of undiversified accounts that own relatively few stocks. First, some undiversified portfolios randomly do well, while others randomly do poorly. Second, larger accounts diversify more effectively and thereby earn higher average log returns even though their average simple returns are no higher than those of smaller accounts.
Keywords: wealth inequality; investment returns; stock market; India
JEL Codes: G11; G40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| return heterogeneity (B50) | wealth inequality (D31) |
| undiversified portfolios (G11) | wealth divergence (D31) |
| account size (M41) | higher average log returns (G17) |
| higher average log returns (G17) | wealth inequality (D31) |
| diversification strategies (L19) | returns earned (D33) |