Financial Returns to Household Inventory Management

49 Pages Posted: 12 Sep 2020

See all articles by Scott R. Baker

Scott R. Baker

Northwestern University, Kellogg School of Management, Department of Finance

Stephanie Johnson

Rice University, Jesse H. Jones Graduate School of Business, Department of Statistics, Students

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: August 2020

Abstract

Households tend to hold substantial amounts of non-financial assets in the form of inventory. Households can obtain significant financial returns from strategic shopping and optimally managing these inventories of consumer goods. 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 earn high returns from inventory management at low levels of inventory, though returns decline rapidly as inventory levels increase. We provide evidence using 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 working capital.

Keywords: financial returns, household working capital, Inventory, Stock Market Participation, stockpiling

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

Suggested Citation

Baker, Scott R. and Johnson, Stephanie and Kueng, Lorenz, Financial Returns to Household Inventory Management (August 2020). CEPR Discussion Paper No. DP15191, Available at SSRN: https://ssrn.com/abstract=3688141

Scott R. Baker (Contact Author)

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

Evanston, IL 60208
United States

Stephanie Johnson

Rice University, Jesse H. Jones Graduate School of Business, Department of Statistics, Students ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

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
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CH-1211 Geneva 4
Switzerland

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

National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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Northwestern University - Kellogg School of Management

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Evanston, IL 60208
United States
+1 (847) 491-7843 (Phone)
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HOME PAGE: http://www.kellogg.northwestern.edu/

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