Heterogeneity and Persistence in Returns to Wealth

We provide a systematic analysis of the properties of individual returns to wealth using twelve years ofpopulation data from Norway's administrative tax records. We document a number of novel results.First, during our sample period individuals earn markedly different average returns on their financialassets (a standard deviation of 14%) and on their net worth (a standard deviation of 8%). Second,heterogeneity in returns does not arise merely from differences in the allocation of wealth between safeand risky assets: returns are heterogeneous even within asset classes. Third, returns are positivelycorrelated with wealth: moving from the 10th to the 90th percentile of the financial wealth distributionincreases the return by 3 percentage points - and by 17 percentage points when the same exercise isperformed for the return to net worth. Fourth, wealth returns exhibit substantial persistence over time.We argue that while this persistence partly reflects stable differences in risk exposure and assets scale,it also reflects persistent heterogeneity in sophistication and financial information, as well asentrepreneurial talent. Finally, wealth returns are (mildly) correlated across generations. We discuss theimplications of these findings for several strands of the wealth inequality debate