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Stock Market Returns and Consumption

Di Maggio, Marco ; Kermani, Amir and Majlesi, Kaveh LU (2020) In Journal of Finance 75(6). p.3175-3219
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 of 23% for the bottom 50% of the wealth distribution and about 3% for the top 30% of the wealth distribution. Household 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
Contribution to journal
publication status
published
subject
in
Journal of Finance
volume
75
issue
6
pages
45 pages
publisher
Wiley-Blackwell
external identifiers
  • scopus:85089195968
ISSN
0022-1082
DOI
10.1111/jofi.12968
language
English
LU publication?
yes
id
b83134c5-ab9b-4628-a810-071e3adfe503
date added to LUP
2021-01-07 13:58:42
date last changed
2022-07-06 04:31:12
@article{b83134c5-ab9b-4628-a810-071e3adfe503,
  abstract     = {{<p>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 of 23% for the bottom 50% of the wealth distribution and about 3% for the top 30% of the wealth distribution. Household 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.</p>}},
  author       = {{Di Maggio, Marco and Kermani, Amir and Majlesi, Kaveh}},
  issn         = {{0022-1082}},
  language     = {{eng}},
  number       = {{6}},
  pages        = {{3175--3219}},
  publisher    = {{Wiley-Blackwell}},
  series       = {{Journal of Finance}},
  title        = {{Stock Market Returns and Consumption}},
  url          = {{http://dx.doi.org/10.1111/jofi.12968}},
  doi          = {{10.1111/jofi.12968}},
  volume       = {{75}},
  year         = {{2020}},
}