Financial Returns to Household Inventory Management

55 Pages Posted: 31 Aug 2020 Last revised: 19 Oct 2022

See all articles by Scott R. Baker

Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance; National Bureau of Economic Research (NBER)

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)

Multiple version iconThere are 3 versions of this paper

Date Written: August 2020

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. 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. High returns from inventory management that are declining in wealth offer a new rationale for poorer households not to participate in risky financial markets, while wealthier households invest in both financial assets and household working capital.

Suggested Citation

Baker, Scott R. and Johnson, Stephanie and Kueng, Lorenz, Financial Returns to Household Inventory Management (August 2020). NBER Working Paper No. w27740, Available at SSRN: https://ssrn.com/abstract=3683616

Scott R. Baker (Contact Author)

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

Evanston, IL 60208
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Stephanie Johnson

Rice University, Jones School of Business ( email )

Lorenz Kueng

University of Lugano - Faculty of Economics

Via Giuseppe Buffi 13
Lugano, TI 6904
Switzerland

HOME PAGE: http://www.usi.ch/en

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

HOME PAGE: http://www.sfi.ch/en/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://cepr.org/

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