Foregone Consumption and Return-Chasing Investments
46 Pages Posted: 2 Aug 2019 Last revised: 1 Sep 2019
Date Written: July 30, 2019
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: Suggested Citation