Financial Returns to Household Inventory Management

55 Pages Posted: 8 Oct 2020 Last revised: 18 Jun 2021

See all articles by Scott R. Baker

Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance

Stephanie Johnson

Rice University, Jones School of Business

Lorenz Kueng

University of Lugano - Faculty of Economics; Swiss Finance Institute; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); Northwestern University - Kellogg School of Management

Multiple version iconThere are 3 versions of this paper

Date Written: May 20, 2021

Abstract

Households tend to hold substantial amounts of non-financial assets in the form of consumer goods inventories that are unobserved by traditional measures of wealth, about $1,100 on average. Such holdings can eclipse total financial assets among households in the lowest income quintile. Households can obtain significant financial returns from shopping strategically and optimally managing these inventories. In addition, they choose to maintain liquid savings – household working capital – not just for precautionary motives but also to support this inventory management. We demonstrate that households with low levels of inventory earn high returns from investing in household working capital, well above 20%, though returns decline rapidly as inventory levels increase. We provide evidence from scanner and survey data that supports this conclusion. Inventory management of consumer goods provides one alternative to investments in risky financial markets at low levels of liquid wealth and can induce uneven spending behavior alongside smooth consumption.

Keywords: household working capital, stock market participation, financial returns, inventory, stockpiling

JEL Classification: G51, G11, D14, D13, D12, D11, E21

Suggested Citation

Baker, Scott R. and Johnson, Stephanie and Kueng, Lorenz, Financial Returns to Household Inventory Management (May 20, 2021). Swiss Finance Institute Research Paper No. 20-114, Available at SSRN: https://ssrn.com/abstract=3677084 or http://dx.doi.org/10.2139/ssrn.3677084

Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance ( email )

Evanston, IL 60208
United States

Stephanie Johnson

Rice University, Jones School of Business ( email )

Lorenz Kueng (Contact Author)

University of Lugano - Faculty of Economics

Via Giuseppe Buffi 13
Lugano, TI 6904
Switzerland

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