Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245365 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9184
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
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
permanent income hypothesis
Document Type: 
Working Paper
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