Foregone Consumption and Return-Chasing Investments

46 Pages Posted: 2 Aug 2019 Last revised: 1 Sep 2019

See all articles by Sumit Agarwal

Sumit Agarwal

National University of Singapore

Ben Charoenwong

National University of Singapore - Department of Finance

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore

Date Written: July 30, 2019

Abstract

Using a broad representative sample of individuals from India with monthly consumption data, we find following a higher positive return in the previous month, individuals decrease consumption and increase their investment account balance. The return-chasing effect is driven by the most popular BSE SENSEX 30 stock index and does not reverse for negative returns, consistent with models with utilities over financial wealth and mental accounting. The foregone consumption comes disproportionately more from luxuries relative to necessities, durables relative to non-durables and services, and debit relative to credit card-financed consumption. The return-chasing is less pronounced among and accounts with liabilities such as mortgages or personal loans.

Keywords: Consumption, Return Chasing, Household Investment

JEL Classification: E21, D14, D15, G41

Suggested Citation

Agarwal, Sumit and Charoenwong, Ben and Ghosh, Pulak, Foregone Consumption and Return-Chasing Investments (July 30, 2019). Available at SSRN: https://ssrn.com/abstract=3428811 or http://dx.doi.org/10.2139/ssrn.3428811

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Ben Charoenwong (Contact Author)

National University of Singapore - Department of Finance ( email )

Mochtar Riady Building
15 Kent Ridge Drive
Singapore, 119245
Singapore

HOME PAGE: http://bizfaculty.nus.edu/faculty-profiles/519-ben

Pulak Ghosh

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India

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