Tehran Institute for Advanced Studies (TeIAS)

/ Stock Market Returns and Consumption __ Kaveh Majlesi


Stock Market Returns and Consumption

January 20, 2018


Khatam University, Building No2.
Address: Mollasadra Blvd., North Shirazi St., East Daneshvar St., No.17. See location on Google map


Dr. Kaveh Majlesi
Assistant Professor of Economics


This paper employs Swedish data containing security level information on households’ stock holdings to investigate how consumption responds to changes in stock market returns. We exploit the households’ portfolio weights in previous years as an instrument for the actual capital gains and dividends payments. Normalizing both consumption and stock market returns by average income, we find that unrealized capital gains lead to a marginal propensity to consume (MPC) of 13 percent for the bottom 50% of the wealth distribution, while it is flat at 5 percent for the rest of the distribution. We also find that households’ consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are broadly consistent with standard permanent income hypothesis. 


Kaveh Majlesi did his undergraduate studies in Electrical Engineering at Sharif University in Tehran and moved to the Unites States in 2004 to do a Master’s degree in Public Administration/International Development at Harvard University. He started at Lund University in August 2012 as an Assistant Professor of Economics after getting his PhD from the
University of Texas at Austin and moving to Sweden.