Heterogeneity and Persistence in Returns to Wealth

Andreas Fagereng, Luigi Guiso, Davide Malacrino and Luigi Pistaferri

No 2018/171, IMF Working Papers from International Monetary Fund

Abstract: We provide a systematic analysis of the properties of individual returns to wealth using twelve years of population data from Norway’s administrative tax records. We document a number of novel results. First, during our sample period individuals earn markedly different average returns on their financial assets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second, heterogeneity in returns does not arise merely from differences in the allocation of wealth between safe and risky assets: returns are heterogeneous even within asset classes. Third, returns are positively correlated with wealth: moving from the 10th to the 90th percentile of the financial wealth distribution increases the return by 3 percentage points - and by 17 percentage points when the same exercise is performed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time. We argue that while this persistence partly reflects stable differences in risk exposure and assets scale, it also reflects persistent heterogeneity in sophistication and financial information, as well as entrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss the implications of these findings for several strands of the wealth inequality debate.

Keywords: WP; private equity; expected return; long-term debt; wealth distribution; Wealth inequality; returns to wealth; net worth; heterogeneity; intergenerational mobility; financial wealth; wealth return regression; return heterogeneity; book value; portfolio return; assets return; heterogeneity channel; market value; risk tolerance; wealth share; return on assets; Income distribution; Stocks; Housing; Capital income; Income (search for similar items in EconPapers)
Pages: 69
Date: 2018-07-27
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Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Heterogeneity and Persistence in Returns to Wealth (2020)
Working Paper: Heterogeneity and persistence in returns to wealth (2019)
Working Paper: Heterogeneity and Persistence in Returns to Wealth (2018)
Working Paper: Heterogeneity and Persistence in Returns to Wealth (2016)
Working Paper: Heterogeneity and Persistence in Returns to Wealth (2016)
Working Paper: Heterogeneity and Persistence in Returns to Wealth (2016)
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