Asset Market Participation, Redistribution, and Asset Pricing

We study how redistribution between asset holders and non‐asset holders links macroeconomic fluctuations to expected stock returns. Aggregate and relative consumption growth forecast excess returns with opposite signs and at different horizons. We interpret these patterns using a production‐based asset‐pricing model with limited participation and external habits. Aggregate (relative) consumption captures variation in the price (quantity) of risk. Technology shocks drive macroeconomic fluctuations, whereas redistributive shocks generate large short‐run movements in inequality and are the main source of priced risk. This points to a macro‐finance disconnect between the drivers of business cycles and those governing risk premia.