Financial Returns to Household Inventory Management

Scott Baker, Stephanie Johnson and Lorenz Kueng

No 27740, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Households tend to hold substantial amounts of non-financial assets in the form of consumer goods inventories that are unobserved by traditional measures of wealth, about $725 on average for products covered by our sample. Such holdings can eclipse total financial assets among households in the lowest income quintile. Households can obtain significant financial returns from strategically shopping and managing these inventories. In addition, they choose to maintain liquid savings—household working capital—not just for precautionary motives but also to support this inventory management. We demonstrate that households earn high marginal returns from investing in household working capital, well above 20% at low levels of inventory, though these marginal returns decline rapidly as inventory increases. Nevertheless, average returns from inventory management are high—about 50% for the typical household—and affect household portfolio returns substantially for all but the top income and asset quintiles. We provide evidence from scanner and survey data that supports this conclusion. For many households, working capital is therefore an important asset class that has been largely ignored by the household finance literature, and inventory management provides them with an alternative to investing in risky financial markets at low levels of liquid wealth.

JEL-codes: D11 D12 D13 D14 E21 G11 G51 (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-mac
Note: AP
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Scott R. Baker & Stephanie Johnson & Lorenz Kueng, 2024. "Financial returns to household inventory management," Journal of Financial Economics, vol 151.

Downloads: (external link)
http://www.nber.org/papers/w27740.pdf (application/pdf)

Related works:
Journal Article: Financial returns to household inventory management (2024)
Working Paper: Financial Returns to Household Inventory Management (2020)
Working Paper: Financial Returns to Household Inventory Management (2020)
Working Paper: Financial Returns to Household Inventory Management (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:27740

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w27740

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().