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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 for the Study of Labor (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: capital gain; dividend income; consumption; near-rational behavior (search for similar items in EconPapers)
JEL-codes: E21 D15 G12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-upt
Date: 2018-02
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Related works:
Working Paper: Stock Market Returns and Consumption (2018) Downloads
Working Paper: Stock Market Returns and Consumption (2018) Downloads
Working Paper: Stock Market Returns and Consumption (2018) Downloads
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