Stock Market Returns and Consumption

Marco Di Maggio, Amir Kermani () and Kaveh Majlesi
Additional contact information
Marco Di Maggio: Harvard Business School
Amir Kermani: University of California, Berkeley

No 11357, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: consumption; dividend income; capital gain; near-rational behavior (search for similar items in EconPapers)
JEL-codes: D15 E21 G12 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2018-02
New Economics Papers: this item is included in nep-mac and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Published - published in: Journal of Finance, 2020, 75 (6), 3175 - 3219

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https://docs.iza.org/dp11357.pdf (application/pdf)

Related works:
Journal Article: Stock Market Returns and Consumption (2020)
Working Paper: Stock Market Returns and Consumption (2018)
Working Paper: Stock Market Returns and Consumption (2018)
Working Paper: Stock Market Returns and Consumption (2018)
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