Stock Market Returns and Consumption

Reprint No. 2020:78

Author(s): Marco Di Maggio, Amir Kermani and Kaveh Majlesi Year: 2020 Title: Journal of Finance Volume (No.): 75 (6) Pages: 3175–3219
Online article (restrictions may apply)
Preliminary version

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 of 23% for the bottom 50% of the wealth distribution and about 3% for the top 30% of the wealth distribution. Household 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.

Di Maggio, Marco, Amir Kermani and Kaveh Majlesi (2020), "Stock Market Returns and Consumption". Journal of Finance 75(6), 3175–3219.

Kaveh Majlesi


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