Stock Market Returns and Consumption

Author

Summary, in English

This paper employs Swedish data on households' stock holdings to investigate how consumption responds to changes in stock market returns. We instrument the actual capital gains and dividend payments with past portfolio weights. Unrealized capital gains lead to a marginal propensity to consume (MPC) of 13 percent for the bottom 50% of the wealth distribution, but a flat 5 percent for the rest of the distribution. Households' consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are consistent with households treating capital gains and dividends as separate sources of income.

Publishing year

2018

Language

English

Publication/Series

Working Papers

Issue

2018:1

Document type

Working paper

Publisher

Department of Economics, Lund Universtiy

Topic

  • Economics

Keywords

  • Capital gain
  • Dividend income
  • Consumption
  • Near-rational behavior
  • D14
  • E21
  • G12

Status

Published