Research Interests
Primary: Macro-Finance, Asset Pricing and Household Finance
Secondary: Macroeconomics
Job Market Paper
Scale-Dependent Returns and the Interest Rate
I revisit the empirical relationship between wealth and returns on wealth of U.S. households over the past 70 years. While recent studies suggest that returns on wealth increase with wealth and that the richest households earn the highest returns, I show that this pattern is specific to post-1980. Before 1980, returns declined at the top 10 percent of the wealth distribution, and in fact, the bottom 90 percent had higher returns than the top 10 percent. I attribute this reversal to differences in households’ exposure to interest rate risk. Because wealthier households tend to hold longer-duration assets, such as stocks and private businesses, changes in real interest rates affect their portfolios more strongly. When real rates rose, as they did before 1980, the top 10 percent households experienced lower returns, whereas falling real rates after 1980 boosted their returns. To explain why wealthier households hold longer-duration assets, I develop a model in which households select portfolio duration to hedge their income risk. Since richer households’ income is more correlated with short-term interest rates, they optimally choose a longer-duration (countercyclical) to hedge this exposure.