The Accredited Investor Definition, Private Investments, and Wealth Inequality in the US

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Zoom URL: https://uni-frankfurt.zoom-x.de/j/62602551918?pwd=Q9OZBaII5qMn8GwznrWbpvShN4wev9.1
Meeting ID: 626 0255 1918
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Abstract:

I study household finances around the income eligibility rules of the accredited investor definition that allow only high-income households access to private investments. Such investments have recently been linked to higher returns and the increase in wealth inequality. My analysis shows that access to private markets increases private investments. The result provides an answer to an important question in the literature and politics: differences in private investments are not only caused by differences in abilities and tastes between wealthy and poor households, but also simply by access to private investments. Moreover, I find discontinuities in wealth and returns. Eligible households exhibit relative increases in the private investments to assets ratio, net wealth, and returns by 6.2pp, 39%, and 1.0pp, respectively. A back-of-the-envelope calculation suggests that the accredited investor definition can explain important parts of recent increases in wealth inequality.

Link to paper: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5012202