Stock market returns and consumption

Marco Di Maggio, Amir Kermani, Kaveh Majlesi

Research output: Contribution to journalArticleResearchpeer-review

35 Citations (Scopus)


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.

Original languageEnglish
Pages (from-to)3175-3219
Number of pages45
JournalJournal of Finance
Issue number6
Publication statusPublished - Dec 2020

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