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Stock Market Returns and Consumption

Majlesi, Kaveh LU ; Di Maggio, Marco and Kermani , Amir (2020) In Journal of Finance
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 23 percent for the bottom 50% of the wealth distribution and about 3 percent for the top 30% of the wealth 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.
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Journal of Finance
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4844ca2a-b2fa-4395-9598-dc03325d9ea9
date added to LUP
2019-08-20 15:52:39
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2019-08-21 09:15:15
@article{4844ca2a-b2fa-4395-9598-dc03325d9ea9,
  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 23 percent for the bottom 50% of the wealth distribution and about 3 percent for the top 30% of the wealth 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       = {Majlesi, Kaveh and Di Maggio, Marco   and Kermani , Amir  },
  language     = {eng},
  series       = {Journal of Finance},
  title        = {Stock Market Returns and Consumption},
  year         = {2020},
}