Inequality riskpremia

Usingalongtime-seriesofU.S.incomeinequality,Ifindthatthemarketpayshigher pricesforassetsthathedgeagainstincreasedinequality.Thisisconsistentwiththe predictionofanincomplete-marketsmodelincorporatingpreferencesoverboth comparativeandnoncomparativeconsumption‘‘goods’’whentheweightontheformer is large.Themodelimpliesthatthetime-seriespropertiesofthepremiumcanbeused to identifythesubstitutabilityofthesetwosourcesofutility.Thereisevidencethatthe magnitudeofthe(negative)inequalityriskpremiumiscountercyclical,suggestingthat agentscaremoreaboutstatuswhentheyareworseoff