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Stock Market Returns and Consumption

Di Maggio, Marco ; Kermani, Amir and Majlesi, Kaveh LU (2018) In Working Papers
Abstract
This paper employs Swedish data on households' stock holdings to investigate how consumption responds to changes in stock market returns. We instrument the actual capital gains and dividend payments with past portfolio weights. Unrealized capital gains lead to a marginal propensity to consume (MPC) of 13 percent for the bottom 50% of the wealth distribution, but a flat 5 percent for the rest of the distribution. Households' consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are consistent with households treating capital gains and dividends as separate sources of income.
Please use this url to cite or link to this publication:
author
; and
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
Capital gain, Dividend income, Consumption, Near-rational behavior, D14, E21, G12
in
Working Papers
issue
2018:1
pages
57 pages
language
English
LU publication?
yes
id
4eb2c90f-5a82-4674-b848-00ecb2b65e0f
date added to LUP
2018-02-16 10:00:47
date last changed
2025-04-04 15:18:58
@misc{4eb2c90f-5a82-4674-b848-00ecb2b65e0f,
  abstract     = {{This paper employs Swedish data on households' stock holdings to investigate how consumption responds to changes in stock market returns. We instrument the actual capital gains and dividend payments with past portfolio weights. Unrealized capital gains lead to a marginal propensity to consume (MPC) of 13 percent for the bottom 50% of the wealth distribution, but a flat 5 percent for the rest of the distribution. Households' consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are consistent with households treating capital gains and dividends as separate sources of income.}},
  author       = {{Di Maggio, Marco and Kermani, Amir and Majlesi, Kaveh}},
  keywords     = {{Capital gain; Dividend income; Consumption; Near-rational behavior; D14; E21; G12}},
  language     = {{eng}},
  note         = {{Working Paper}},
  number       = {{2018:1}},
  series       = {{Working Papers}},
  title        = {{Stock Market Returns and Consumption}},
  url          = {{https://lup.lub.lu.se/search/files/194585714/WP18_1.pdf}},
  year         = {{2018}},
}