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  4. September 2020
  5. Rich Pickings? Risk, Return, and Skill in Household Wealth

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Rich Pickings? Risk, Return, and Skill in Household Wealth

  • Laurent Bach
  • Laurent E. Calvet
  • Paolo Sodini
American Economic Review
vol. 110, no. 9, September 2020
(pp. 2703–47)
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Abstract

We investigate wealth returns on an administrative panel containing the disaggregated balance sheets of Swedish residents. The expected return on household net wealth is strongly persistent, determined primarily by systematic risk, and increasing in net worth, exceeding the risk-free rate by the size of the equity premium for households in the top 0.01 percent. Idiosyncratic risk is transitory but generates substantial long-term dispersion in returns in top brackets. Systematic and idiosyncratic risk both drive the cross-sectional distribution of the geometric average return over a generation. Furthermore, wealth returns explain most of the historical increase in top wealth shares.

Citation

Bach, Laurent, Laurent E. Calvet, and Paolo Sodini. 2020. "Rich Pickings? Risk, Return, and Skill in Household Wealth." American Economic Review 110 (9): 2703–47. DOI: 10.1257/aer.20170666

Additional Materials

JEL Classification

  • D31 Personal Income, Wealth, and Their Distributions
  • G11 Portfolio Choice; Investment Decisions
  • G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth