Stock Market Returns and Consumption

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Stock Market Returns and Consumption. / Majlesi, Kaveh; Di Maggio, Marco ; Kermani , Amir .

In: Journal of Finance, 2020.

Research output: Contribution to journalArticle

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Majlesi, K., Di Maggio, M., & Kermani , A. (Accepted/In press). Stock Market Returns and Consumption. Journal of Finance.

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Majlesi, Kaveh ; Di Maggio, Marco ; Kermani , Amir . / Stock Market Returns and Consumption. In: Journal of Finance. 2020.

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TY - JOUR

T1 - Stock Market Returns and Consumption

AU - Majlesi, Kaveh

AU - Di Maggio, Marco

AU - Kermani , Amir

PY - 2020

Y1 - 2020

N2 - 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.

AB - 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.

M3 - Article

JO - Journal of Finance

T2 - Journal of Finance

JF - Journal of Finance

ER -