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
JEL(s):
Programme Areas: Financial Economics
Link to this Page: www.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.