Wealth Redistribution in Bubbles and Crashes
61 Pages Posted: 19 Jun 2019 Last revised: 29 Oct 2020
Date Written: November 1, 2018
What are the social-economic consequences of financial market bubbles and crashes? Using novel 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 household 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 broader implications.
Keywords: bubbles and crashes, wealth inequality, market participation, social impact
JEL Classification: D14, D31, D91, G11, G51, O16
Suggested Citation: Suggested Citation