Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258955 
Year of Publication: 
2021
Series/Report no.: 
CEBI Working Paper Series No. 11/21
Publisher: 
University of Copenhagen, Department of Economics, Center for Economic Behavior and Inequality (CEBI), Copenhagen
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.
Subjects: 
wealth shocks
household consumption
marginal propensity to consume
stock markets
permanent income hypothesis
JEL: 
D12
G51
E21
Document Type: 
Working Paper

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