A Macroeconomic Perspective on Asset Holders’ Risk Aversion

The unequal distribution of wealth and income causes only a relatively small number of people in developed countries to own stocks. As a result, consumption by stockholders differs from that of non-stockholders. This has been demonstrated by a number of studies, which have all made use of consumer survey data. These data are scarce though and the approximation of stockholders’ and non-stockholders’ consumption by long time series data could greatly enhance our understanding of asset markets. This paper is the first attempt to show empirically that the difference between consumption by stockholders and by non-stockholders can also be illustrated with macroeconomic data from national accounts. Data from seven different economies will show that stockholders’ consumption growth tends to be more volatile than that of non-stockholders’ and that there is a stronger correlation to the excess returns on stock markets. This partly explains why equity premiums in developed economies have been so high, although it cannot resolve the equity premium puzzle completely.