NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Stock Market Returns and Consumption

Marco Di Maggio, Amir Kermani, Kaveh Majlesi

NBER Working Paper No. 24262
Issued in January 2018, Revised in May 2020
NBER Program(s):Asset Pricing, Corporate Finance, Monetary Economics

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

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Document Object Identifier (DOI): 10.3386/w24262

forthcoming in Journal of Finance

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