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THE STOCK MARKET WEALTH AND CONSUMER SPENDING BEHAVIOUR: IS THERE A WEALTH EFFECT?

Year 2011, Volume: 3 Issue: 1, 111 - 118, 01.06.2011

Abstract

This paper investigates the effects of stock market wealth on consumer spending. Basic macroeconometric models estimate that a Saudi Riyal's increase in stock market wealth boosts consumer spending by 7-9 Halals per year. With the significant 2004 and 2005 rise in stock prices in Saudi financial market, the nature and importance of this wealth effect have been much debated. After reviewing previous works, we find new evidence from the Direct Survey of Income & Consumption(DSOIC). The survey results are mostly consistent with lifecycle saving and a modest wealth effect. Some stockholders reported substantial effect of stock prices on their saving and spending

References

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  • The Bangladesh Case" Saving and Development 23:2, 109-129. Ando, A. and F. Modigliani (1963), The "'Life-Cycle’ Hypothesis of Savings:
  • Aggregate Implications and Tests", American Economic Review, 53, 55-84. Attanasio, Orazio, James Banks, and Sarah Tanner (1998), “Asset Holdings and Consumption Volatility.” National Bureau of Economic Research working paper no 6567. Washington D.C.
  • Brav, Alon, George M. Constantinides, and Christopher C. Geczy (1999), “Asset
  • Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence.” Rodney L.White Center for Financial Research working paper no. 23- Washington D.C. Brayton, Flint and Peter Tinsley (1996), “A Guide to FRB/US.” Federal Reserve
  • Board Finance and Discussion Series working paper no. 1996-42. Washington D.C.
  • Carroll, Christopher D. (2000), "Why Do the Rich Save so Much?" In Does Atlas
  • Shrug? The Economic Consequences of Taxing the Rich, edited by Joel Slemrod. Cambridge, MA: Harvard University Press and Russell Sage Foundation. Friend, Irwin, and Charles Lieberman (1975), "Short-Run Asset Effects on
  • Household Saving and Consumption: The Cross-Section Evidence." American Economic Review, 65, 1975, 624-33.
  • Imbens, G., D. Rubin and B. Sacerdote (1999), "Estimating the Effect of
  • Unearned Income on Labor Supply, Earnings, Savings and Consumption: Evidence from a Survey of Lottery Players." NBER Working Paper 7001.
  • Lettau, M. and S. Ludvigson (2001), Consumption, Aggregate Wealth and Stock
  • Returns. Journal of Finance, 23, 121-129. Ludvigson, S. & C. Steindel (1999), "How important is stock market wealth consumption?" Federal Reserve Bank of New York, 5, 11, 16, 27, 28-29.
  • Juster, F. Thomas, Joseph Lupton, James P. Smith and Frank Stafford (1999),
  • "Savings and Wealth; Then and Now." Mimeo, University of Michigan. Mankiw, N. Gregory and Stephen P. Zeldes (1991), “The Consumption of
  • Stockholders and Nonstockholders.” Journal of Financial Economics 29: 97-112. Mookerjee, R. (1988), "The Stock Market and the Economy: The Indian
  • Experience. 1949-81." Indian Economics Journal. 36:2, 30-43.
  • Muellbauer, J. and A. Murphy (1990), “Is the UK Balance of Payments
  • Sustainable?” Economic Policy, 11, 345-383. Nashat, M. And M. Saghir (1991), "The Stock Market and the Economy." Saving and Development. 15:2, 131-145.
  • Otoo, Maria W. (1999), “Consumer Sentiment and the Stock Market.” Federal
  • Reserve Board Finance and Discussion Series working paper no. 1999-60.
  • Parker, Jonathan A. (1999), "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate" in Ben Bernanke and Julio Rotemberg, eds., NBER
  • Macroeconomics Annual, 1999. MIT Press, Cambridge.
  • Paiella, M. (2004), “Heterogeneity in Financial Market Participation: Appraising its Implications for the C-CAPM” Review of Finance, 8, 445-480.
  • Poterba, James and Andrew Samwick (1995), “Stock Ownership Patterns, Stock
  • Market Fluctuations, and Consumption.” Brookings Papers on Economic Activity no. 2: 295-357. Shleifer, Andrei (1995), “Comments on Poterba and Samwick’s ‘Stock
  • Ownership Patterns, Stock Market Fluctuations, and Consumption’.” Brookings Papers on Economic Activity no. 2: 358-59. Starr-McCluer, M. (1998), “Stock Market Wealth and Consumer Spending.”
  • Board of Governors of the Federal Reserve System, FEDS Working Paper No. 20. Starr-McCluer, Martha (2000), “Stock Market Wealth and Consumption.” Mimeo,
  • Federal Reserve Board. Vissing-Jİrgensen, Annette (1999), “Limited Stock Market Participation and the Equity Premium Puzzle. Mimeo, University of Chicago.
Year 2011, Volume: 3 Issue: 1, 111 - 118, 01.06.2011

Abstract

References

  • Ahmed, M. F. (1999), "Stock Market, Macroeconomic Variables, and Casuality:
  • The Bangladesh Case" Saving and Development 23:2, 109-129. Ando, A. and F. Modigliani (1963), The "'Life-Cycle’ Hypothesis of Savings:
  • Aggregate Implications and Tests", American Economic Review, 53, 55-84. Attanasio, Orazio, James Banks, and Sarah Tanner (1998), “Asset Holdings and Consumption Volatility.” National Bureau of Economic Research working paper no 6567. Washington D.C.
  • Brav, Alon, George M. Constantinides, and Christopher C. Geczy (1999), “Asset
  • Pricing with Heterogeneous Consumers and Limited Participation: Empirical Evidence.” Rodney L.White Center for Financial Research working paper no. 23- Washington D.C. Brayton, Flint and Peter Tinsley (1996), “A Guide to FRB/US.” Federal Reserve
  • Board Finance and Discussion Series working paper no. 1996-42. Washington D.C.
  • Carroll, Christopher D. (2000), "Why Do the Rich Save so Much?" In Does Atlas
  • Shrug? The Economic Consequences of Taxing the Rich, edited by Joel Slemrod. Cambridge, MA: Harvard University Press and Russell Sage Foundation. Friend, Irwin, and Charles Lieberman (1975), "Short-Run Asset Effects on
  • Household Saving and Consumption: The Cross-Section Evidence." American Economic Review, 65, 1975, 624-33.
  • Imbens, G., D. Rubin and B. Sacerdote (1999), "Estimating the Effect of
  • Unearned Income on Labor Supply, Earnings, Savings and Consumption: Evidence from a Survey of Lottery Players." NBER Working Paper 7001.
  • Lettau, M. and S. Ludvigson (2001), Consumption, Aggregate Wealth and Stock
  • Returns. Journal of Finance, 23, 121-129. Ludvigson, S. & C. Steindel (1999), "How important is stock market wealth consumption?" Federal Reserve Bank of New York, 5, 11, 16, 27, 28-29.
  • Juster, F. Thomas, Joseph Lupton, James P. Smith and Frank Stafford (1999),
  • "Savings and Wealth; Then and Now." Mimeo, University of Michigan. Mankiw, N. Gregory and Stephen P. Zeldes (1991), “The Consumption of
  • Stockholders and Nonstockholders.” Journal of Financial Economics 29: 97-112. Mookerjee, R. (1988), "The Stock Market and the Economy: The Indian
  • Experience. 1949-81." Indian Economics Journal. 36:2, 30-43.
  • Muellbauer, J. and A. Murphy (1990), “Is the UK Balance of Payments
  • Sustainable?” Economic Policy, 11, 345-383. Nashat, M. And M. Saghir (1991), "The Stock Market and the Economy." Saving and Development. 15:2, 131-145.
  • Otoo, Maria W. (1999), “Consumer Sentiment and the Stock Market.” Federal
  • Reserve Board Finance and Discussion Series working paper no. 1999-60.
  • Parker, Jonathan A. (1999), "Spendthrift in America? On Two Decades of Decline in the U.S. Saving Rate" in Ben Bernanke and Julio Rotemberg, eds., NBER
  • Macroeconomics Annual, 1999. MIT Press, Cambridge.
  • Paiella, M. (2004), “Heterogeneity in Financial Market Participation: Appraising its Implications for the C-CAPM” Review of Finance, 8, 445-480.
  • Poterba, James and Andrew Samwick (1995), “Stock Ownership Patterns, Stock
  • Market Fluctuations, and Consumption.” Brookings Papers on Economic Activity no. 2: 295-357. Shleifer, Andrei (1995), “Comments on Poterba and Samwick’s ‘Stock
  • Ownership Patterns, Stock Market Fluctuations, and Consumption’.” Brookings Papers on Economic Activity no. 2: 358-59. Starr-McCluer, M. (1998), “Stock Market Wealth and Consumer Spending.”
  • Board of Governors of the Federal Reserve System, FEDS Working Paper No. 20. Starr-McCluer, Martha (2000), “Stock Market Wealth and Consumption.” Mimeo,
  • Federal Reserve Board. Vissing-Jİrgensen, Annette (1999), “Limited Stock Market Participation and the Equity Premium Puzzle. Mimeo, University of Chicago.
There are 29 citations in total.

Details

Other ID JA89VD75HV
Journal Section Articles
Authors

Hussain Al-obaid This is me

Publication Date June 1, 2011
Published in Issue Year 2011 Volume: 3 Issue: 1

Cite

APA Al-obaid, H. (2011). THE STOCK MARKET WEALTH AND CONSUMER SPENDING BEHAVIOUR: IS THERE A WEALTH EFFECT?. International Journal of Economics and Finance Studies, 3(1), 111-118.
AMA Al-obaid H. THE STOCK MARKET WEALTH AND CONSUMER SPENDING BEHAVIOUR: IS THERE A WEALTH EFFECT?. IJEFS. June 2011;3(1):111-118.
Chicago Al-obaid, Hussain. “THE STOCK MARKET WEALTH AND CONSUMER SPENDING BEHAVIOUR: IS THERE A WEALTH EFFECT?”. International Journal of Economics and Finance Studies 3, no. 1 (June 2011): 111-18.
EndNote Al-obaid H (June 1, 2011) THE STOCK MARKET WEALTH AND CONSUMER SPENDING BEHAVIOUR: IS THERE A WEALTH EFFECT?. International Journal of Economics and Finance Studies 3 1 111–118.
IEEE H. Al-obaid, “THE STOCK MARKET WEALTH AND CONSUMER SPENDING BEHAVIOUR: IS THERE A WEALTH EFFECT?”, IJEFS, vol. 3, no. 1, pp. 111–118, 2011.
ISNAD Al-obaid, Hussain. “THE STOCK MARKET WEALTH AND CONSUMER SPENDING BEHAVIOUR: IS THERE A WEALTH EFFECT?”. International Journal of Economics and Finance Studies 3/1 (June 2011), 111-118.
JAMA Al-obaid H. THE STOCK MARKET WEALTH AND CONSUMER SPENDING BEHAVIOUR: IS THERE A WEALTH EFFECT?. IJEFS. 2011;3:111–118.
MLA Al-obaid, Hussain. “THE STOCK MARKET WEALTH AND CONSUMER SPENDING BEHAVIOUR: IS THERE A WEALTH EFFECT?”. International Journal of Economics and Finance Studies, vol. 3, no. 1, 2011, pp. 111-8.
Vancouver Al-obaid H. THE STOCK MARKET WEALTH AND CONSUMER SPENDING BEHAVIOUR: IS THERE A WEALTH EFFECT?. IJEFS. 2011;3(1):111-8.