Working Paper

Mutual funds and the evolving long-run effects of stock wealth on U.S. consumption

Abstract: Lower mutual fund loads have plausibly boosted the stock wealth elasticity of U.S. consumption by enhancing stock liquidity and arguably by inducing stock ownership among middle-income families, consistent with theory and cross-section data (Guiso, Haliassios, and Jappelli (2003), Haliassios (2002), Heaton and Lucas (1996, 2000), and Vissing-Jorgensen (2002)). In load-modified models, the stock wealth elasticity is declining in loads and more stable long-run wealth and income coefficients arise, especially controlling for mortgage refinancing and equity withdrawal activity. Modified models imply that the stock wealth elasticity has risen, while conventional models overestimate the wealth and underestimate the income elasticities of consumption.

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 2005

Number: 0511

Note: Published as: Duca, John V. (2006), "Mutual Funds and the Evolving Long-Run Effects of Stock Wealth on U.S. Consumption," Journal of Economics and Business 58 (3): 202-221.