Maestría en Economía (tesis)

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Inequality and the equity premium : empirical cross-country evidence
(Universidad EAFIT, 2024) Calderón Castillo, Saira Tatiana; Goda, Thomas
This paper empirically examines the relationship between income and wealth inequality and the subsequent period equity premium for 49 countries in the period 2002 - 2019. As an approximation of inequality are used relative inequality measurements, absolute inequality measurements and capital share income. Through a two-step Generalized Method of Moments with country fixed effects, it is found that, while relative inequality and capital share income do not significantly impact the equity premium, absolute inequality has a positive and significant correlation with it. The study used two distinct definitions of the stock returns rate, based on Christou et al. (2021) and Toda & Walsh (2020), which enhances the robustness of the findings by accounting for potential variations in the measurement of this critical equity premium component. These findings contribute to the ongoing debate on the impact of inequality on the equity premium and highlight the complexity of the relationship and the need for further research.