Arbeitspapier

Stock market returns and consumption

This paper employs Swedish data containing security level information on households' stock holdings to investigate how consumption responds to changes in stock market returns. We exploit households' portfolio weights in previous years as an instrument for actual capital gains and dividends payments. We find that 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. We also find that households' consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are broadly consistent with near-rational behavior in which households optimize their consumption with respect to capital gains and dividends income as if they were separate sources of income.

Language
Englisch

Bibliographic citation
Series: IFN Working Paper ; No. 1198

Classification
Wirtschaft
Intertemporal Household Choice; Life Cycle Models and Saving
Macroeconomics: Consumption; Saving; Wealth
Asset Pricing; Trading Volume; Bond Interest Rates
Subject
Capital gain
Dividend income
Consumption
Near-rational behavior

Event
Geistige Schöpfung
(who)
Di Maggio, Marco
Kermani, Amir
Majlesi, Kaveh
Event
Veröffentlichung
(who)
Research Institute of Industrial Economics (IFN)
(where)
Stockholm
(when)
2018

Handle
Last update
10.03.2025, 11:45 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Di Maggio, Marco
  • Kermani, Amir
  • Majlesi, Kaveh
  • Research Institute of Industrial Economics (IFN)

Time of origin

  • 2018

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