Stock Market Returns and Consumption

55 Pages Posted: 29 Jan 2018 Last revised: 18 Apr 2021

See all articles by Marco Di Maggio

Marco Di Maggio

Harvard Business School; National Bureau of Economic Research (NBER)

Amir Kermani

University of California, Berkeley; National Bureau of Economic Research (NBER)

Kaveh Majlesi

Lund University; Research Institute of Industrial Economics (IFN); IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: January 2018

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 23% for the bottom 50% of the wealth distribution and about 3% 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.

Suggested Citation

Di Maggio, Marco and Kermani, Amir and Majlesi, Kaveh, Stock Market Returns and Consumption (January 2018). NBER Working Paper No. w24262, Available at SSRN: https://ssrn.com/abstract=3112054

Marco Di Maggio (Contact Author)

Harvard Business School ( email )

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HOME PAGE: http://https://www.hbs.edu/faculty/Pages/profile.aspx?facId=697248

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Amir Kermani

University of California, Berkeley ( email )

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Kaveh Majlesi

Lund University ( email )

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IZA Institute of Labor Economics ( email )

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