Dynamic Spending Responses to Wealth Shocks: Evidence from Quasi-Lotteries on the Stock Market

47 Pages Posted: 14 Jul 2021

See all articles by Asger Lau Andersen

Asger Lau Andersen

University of Copenhagen - Department of Economics

Niels Johannesen

University of Copenhagen

Adam Sheridan

University of Copenhagen

Multiple version iconThere are 3 versions of this paper

Date Written: July 2021

Abstract

How much and over what horizon do households adjust their consumption in response to stock market wealth shocks? We address these questions using granular data on spending and stock portfolios from a large bank and exploiting lottery-like variation in gains across investors with similar portfolio characteristics. Consistent with the permanent income hypothesis, spending responses to stock market gains are immediate and persistent. The responses cumulate to a marginal propensity to consume of around 4% over a one-year horizon. The estimates differ substantially by household liquidity, but not by financial attention, as measured by the frequency of account logins.

Suggested Citation

Andersen, Asger Lau and Johannesen, Niels and Sheridan, Adam, Dynamic Spending Responses to Wealth Shocks: Evidence from Quasi-Lotteries on the Stock Market (July 2021). CEPR Discussion Paper No. DP16338, Available at SSRN: https://ssrn.com/abstract=3886825

Asger Lau Andersen (Contact Author)

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Niels Johannesen

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

Adam Sheridan

University of Copenhagen

Nørregade 10
Copenhagen, DK-1165
Denmark

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