DP13116 Do the Rich Get Richer in the Stock Market? Evidence from India
|Author(s):||John Y Campbell, Tarun Ramadorai, Benjamin Ranish|
|Publication Date:||August 2018|
|Keyword(s):||Diversification, equities, India, Wealth Inequality|
|Programme Areas:||Financial Economics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=13116|
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.