Asset Market Participation, Redistribution, and Asset Pricing

The dynamics of consumption inequality is important to understand asset pricing and its connection with the macroeconomy. We document marked heterogeneity in the transmission of different aggregate shocks to the consumption (and income) of U.S. assetholders relative to that of non-assetholders. Unlike technology shocks, factor-share shocks that redistribute resources from labor to capital income generate strong procyclicality in relative consumption, and are relevant drivers of time-variation in expected stock returns. A limited participation model rationalizing these findings highlights that asset prices mostly reflect risk stemming from redistribution between different income sources, which however has limited influence on macroeconomic fluctuations.