In this research, the effect of income inequality as measured by the share of national income going to the wealthiest 10% of the nation in the U.S. is assessed for its significance at explaining stock returns in the U.S from 1927 to 2012. Income inequality has always been an important economic indicator and it has the potential to become one of the fundamental sources of risk that affect stock prices. By utilizing the Fama-French three-factor model, this research obtains the inequality beta coefficient, and the inequality risk premium. In turn, the findings of this research suggest the existence of a relationship between income inequality and the rate of market participation, which ultimately influences the rate of return on stocks.
Level of Honors
Nguyen, Minh T., "Income Inequality and Stock Pricing in the U.S. Market" (2013). Lawrence University Honors Projects. Paper 33.