Income inequality and the volatility of stock prices

摘要

We examine the link between income inequality and the price volatility of American Depository Receipts (ADRs). Using a large sample of ADRs across 37 countries, we find that income inequality is negatively associated with ADR volatility. To draw stronger causal inferences, we use the implementation of the French 'Millionaire Tax' as a negative shock to the perceived level of income inequality in France. In difference-in-difference tests, we find that volatility for French ADRs vis-a-vis non-French ADRs increased by at least 4.85 percentage points after the tax change. Therefore, instead of creating political and social uncertainty, income inequality has a stabilizing influence on the volatility of stock prices, which we argue is a result of higher-skilled human capital.