Template-Type: ReDIF-Paper 1.0
Title: Unemployment risk, portfolio choice, and the racial wealth gap
Author-Name: Ellora Derenoncourt
Author-Email: ellora.derenoncourt@princeton.edu
Author-Name: Chi Hyun Kim
Author-Email: ckim@uni-bonn.de
Author-Name: Moritz Kuhn
Author-Email: mokuhn@uni-mannheim.de
Author-Name: Moritz Schularick
Author-Email: moritz.schularick@sciencespo.fr
Classification-JEL: D31, G11, E21
Keywords: Racial Wealth Inequality, Household Portfolio Choice, Unemployment Risk

Abstract: Black Americans face higher cyclical unemployment risk than white Americans: job-finding
rates during recessions are lower and the risk of becoming long-term unemployed is higher.
Differences in unemployment risk across Black and white Americans imply that Black Americans
optimally invest less in risky assets. We show that differences in unemployment risk
can explain up to 90% of the gap in the stock market shares of Black and white portfolios,
resulting in lower returns on wealth for Black Americans. Through this portfolio channel,
adverse labor market conditions for Black Americans translate into lower wealth returns and
exacerbate racial wealth inequality.

Note: 
Length: 29
Creation-Date: 2024-02
Revision-Date:
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp508
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2024_508