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

Author

Listed:
  • Johannesen, Niels
  • Andersen, Asger Lau
  • Sheridan, Adam

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

  • Johannesen, Niels & Andersen, Asger Lau & Sheridan, Adam, 2021. "Dynamic Spending Responses to Wealth Shocks: Evidence from Quasi-lotteries on the Stock Market," CEPR Discussion Papers 16338, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:16338
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    Cited by:

    1. is not listed on IDEAS
    2. Francesco Capozza & Ingar Haaland & Christopher Roth & Johannes Wohlfart, 2021. "Studying Information Acquisition in the Field: A Practical Guide and Review," CEBI working paper series 21-15, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    3. Asger Lau Andersen & Niels Johannesen & Mia Jørgensen & José‐Luis Peydró, 2023. "Monetary Policy and Inequality," Journal of Finance, American Finance Association, vol. 78(5), pages 2945-2989, October.
    4. Jappelli, Tullio & Savoia, Ettore & Sciacchetano, Alessandro, 2024. "Intertemporal MPC and Shock Size," Working Paper Series 443, Sveriges Riksbank (Central Bank of Sweden).

    More about this item

    Keywords

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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