Income Inequality and Stock Returns: Asymmetric Effects on Canadian Provinces

Abstract Research purpose. Most countries with highly capitalised free markets and countries with dominant state-owned economies may have difficulty in preventing income inequality. Productivity and income distribution are expected to have an impact on income inequality. The present paper aims to discover whether there is an asymmetric effect between Stock Return and Income inequality in Canada at the provincial level. Design / Methodology / Approach. We analyse annual data from 1976 to 2021 from ten representative Canadian provinces employing an autoregressive distributed lag model (ARDL) for linear and nonlinear model approaches, and reconstruct the error correction model (ECM) to identify aggregation bias. Findings. While in the long run, the impact on income inequality is not significant due to aggregation, our short-run results indicate a significant relationship between stock returns and income inequality in most of the Canadian provinces. Originality / Value / Practical implications. There is evidence of these effects of stock returns on income inequality being asymmetric (partial sums have different coefficients in sign and size) in most cases, and this effect may persist in the long term. This asymmetry suggests that policy measures addressing income inequality should account for temporal variations and the differential impacts of financial market developments.