DP15029 Wealth Redistribution in Bubbles and Crashes

Author(s): Dong Lou
Publication Date: July 2020
Keyword(s): bubbles and crashes, market participation, social impact, Wealth Inequality
JEL(s): D14, D31, D91, G11, G51, O16
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15029

Using comprehensive administrative data from China, we document a substantial increase in inequality of wealth held in risky assets by Chinese households in the 2014-15 bubble-crash episode: the largest 0.5% households in the equity market gain, while the bottom 85% lose, 250B RMB through active trading in this period, or 30% of either group's initial equity wealth. In comparison, the return differential between the top and bottom groups in 2012-14, a period of a relatively calm market, is an order of magnitude smaller. We examine a number of possible explanations for these findings and discuss their implications.