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Stock Ownership Patterns, Stock Market Fluctuations, and Consumption

1995; Volume: 1995; Issue: 2 Linguagem: Inglês

10.2307/2534614

1533-4465

James M. Poterba, Andrew Samwick, Andrei Shleifer, Robert J. Shiller,

Monetary Policy and Economic Impact

The market value of corporate stock in the United States increased by nearly one trillion dollars between December 1994 and July 1995.This paper explores the distribution of the stock ownership, and hence the gains from the stock price rise, and what the rise in stock prices implies for consumer spending.It begins by noting the substantial change in the pattern of stock ownership during the postwar period.Individual investors, who directly held most corporate stock in the early 1950s, have gradually replaced their direct stock holdings with indirect holdings through mutual funds, pension funds, and other financial intermediaries.It then documents the substantial predictive power of stock price fluctuations for future consumption growth, and considers two potential explanations for this relationship.The first, or "leading indicator," view, holds that the stock market responds to news that suggests consumption will rise in the future.This does not suggest any causality between stock price changes and subsequent consumption movements.An alternative and not necessarily exclusive view, the "wealth effect," holds that higher stock prices raise consumption by raising household net worth, and thereby expanding consumption opportunity sets.We test for the importance of the wealth effect by studying the effect of stock price changes on the share of consumption devoted to luxury items, and we test for effects of changing stock price ownership patterns on the link between stock price fluctuations and consumption growth.We find virtually no evidence to support important wealth effects associated with stock price changes.We also explore whether the source of stock price fluctuations, in particular fluctuations that are related to changes in dividends or earnings rather than to changes in discount rates, affects the predicted change in consumption that follows a stock price change.